Reinsurance units drag on Berkshire Hathaway’s 2019 earnings

Berkshire Hathaway’s insurance segment suffered poor results in 2019, largely due to losses in its reinsurance business.

The Berkshire Hathaway Reinsurance Group reported an underwriting loss of $1.47 billion, compared to a loss of $1.1 billion in 2018.

This was negated by the performance of insurer GEICO, which made an underwriting profit of $1.5 billion compared with $2.4 billion a year earlier. And the Berkshire Hathaway Primary Group also contributed with a profit of $383 million compared with $670 million in 2018.

The company’s insurance businesses overall generated after-tax earnings from underwriting of $325 million in 2019 compared to earnings of $1.6 billion in 2018. Insurance underwriting results included after-tax losses from significant catastrophe events of approximately $800 million in 2019, compared to $1.3 billion in 2018.

“Earnings from primary insurance operations were lower in 2019 and losses from reinsurance were higher than in 2018,” said the company. “After-tax underwriting earnings in 2019 included lower earnings from reductions of estimated ultimate liabilities for prior years’ property/casualty loss events as compared to 2018 and losses of $92 million from foreign currency exchange rate changes on certain non-US Dollar denominated liabilities of US subsidiaries.”

Premiums written in the property/casualty reinsurance unit reached $10.4 billion, compared with $9.4 billion in 2019. Life/health reinsurance premiums written fell from $5.4 billion in 2018 to $4.9 billion in 2019. Retroactive reinsurance premiums written rose from $517 million in 2018 to $684 million in 2019.

Commenting on its reinsurance property/casualty results, the company said: “The increase in premiums written reflected overall growth in US and international markets. The growth was primarily attributable to new business, net of non-renewals, and increased participations for renewal business, partly offset by the unfavorable foreign currency translation effects of a stronger US Dollar.

“Property/casualty premiums written in 2018 were $9.4 billion, an increase of 22 percent over 2017. The increase was primarily attributable to new business and increased participations for renewal business in both property and casualty lines. Premiums earned included $1.7 billion in 2019 and $1.8 billion in both 2018 and 2017 from a 10-year, 20 percent quota-share contract with Insurance Australia Group Limited, which expires in 2025.

“Losses and loss adjustment expenses were $7.3 billion in 2019, $6.9 billion in 2018 and $7.2 billion in 2017 and losses and loss adjustment expense ratios were 73.8 percent in 2019, 77.6 percent in 2018 and 95.6 percent in 2017.

“Losses and loss adjustment expenses included incurred losses from significant catastrophe events occurring each year, including approximately $1 billion in 2019 ($700 million in the fourth quarter), $1.3 billion in 2018 ($1.1 billion in the fourth quarter) and $2.4 billion in 2017.

“Losses in 2019 derived from Typhoons Faxia and Hagibis and wildfires in California and Australia. Losses in 2018 derived from Hurricanes Florence and Michael, Typhoon Jebi and wildfires in California. Losses in 2017 derived from Hurricanes Harvey, Irma and Maria, an earthquake in Mexico, a cyclone in Australia and wildfires in California.

“Before the effects of significant catastrophe events, losses and loss adjustment expense ratios were 64 percent in 2019, 63 percent in 2018 and 64 percent in 2017. Losses and loss adjustment expenses also included gains from net decreases in estimated ultimate claim liabilities attributable to prior years’ loss events of approximately $295 million in 2019, $469 million in 2018 and $295 million in 2017. Such decreases as percentages of the related net unpaid claim liabilities as of the beginning of the applicable year were 1 percent in 2019, 1.7 percent in 2018 and 1.2 percent in 2017.”