Berkshire eschews long-term ties in property cat, can go year by year
Berkshire Hathaway will approach property cat from a trading perspective, able to move into and out of the market year by year as trading conditions beat or fall short of its requirement, Warren Buffett and his top insurance official have indicated.
“We'll ride it one year at a time,” Berkshire Hathaway chair Warren Buffett told his company's shareholder gathering when asked about the impact of climate change on the insurance business. “We don't have to tell you what is going to happen five years from now or ten years from now.”
Berkshire's leading hedge against the impact of climate change is the single-year character of its contractual liabilities, the group's deputy chairman for insurance, Ajit Jain, explained.
That year-at-a-time character “mitigates the problem for us, especially in some of the reinsurance operations we are in,” he said. Each year brings either “the opportunity to reprice” or “the decision to get out of the business altogether if we don't like the pricing.”
Climate change should have that pricing on a heady upwards trajectory, Jain added.
“Clearly, prices need to go up,” Jain said. “They need to go up a lot and we keep increasing prices and hope we stay ahead of the curve.”
State insurance regulators are showing signs of grasping the threat to their insurance markets and easing back on long-standing practices of “tying the feet” of insurers to prevent market retreats or repricings, he indicated.
“I think the regulators are getting a little more realistic about it and they are waking up to the fact that the insurance carriers need to make some kind of return,” Jain said of market conditions.
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