Berkshire extends re/insurance rebound from 2022 losses; GEICO in focus
Berkshire Hathaway held on to its earnings recovery through end-2023, extending a sharp rebound for auto unit Geico but suffering some Q4 margin erosion in other primary and reinsurance operations.
“Our insurance business performed exceptionally well last year, setting records in sales, float and underwriting profits,” CEO Warren Buffett said in his letter to shareholders.
“We have much room to grow,” he added. Major cat losses, if and when they come, will impede Berkshire Hathaway less than its rivals, Buffett said.
“Unlike many other insurers, however, handling the loss will not come close to straining our resources, and we will be eager to add to our business the next day,” Buffet said. The group ended 2023 with $33.7 billion in cash and cash equivalents on top of $130 billion in short-term Treasury paper before even considering the massive equity book.
Automotive insurance unit GEICO continued its sharp turnaround from massive 2022 losses, although without yet returning to any notable volume growth.
Geico losses and adjustment expenses fell 12.4% or $4.5 billion in 2023, having expanded to a 15.1% decline by Q4. That drove the bulk of the 14.1 point decline in the unit’s combined ratio to 90.7% for FY2023 or 18.2 points for Q4 alone, calculations between FY and 9M figures indicated.
But net earned premiums rose only 0.7% for the full year after having turned positive only in Q3 and accelerating to a mild 2.7% annual gain in the fourth quarter. Geico had shed volume notably in the first half in the struggle to escape 2022’s underwriting losses.
Margins fell in Berkshire Hathaway P&C reinsurance in the fourth quarter, but managed to leave the group with a margin gain for the year, albeit with both periods skewed by the late 2022 purchase of Allegheny and its reinsurance unit Trans Re.
The P&C reinsurance combined ratio rose 6.4 points year on year in Q4 to 91.2%, trimming the FY margin improvement to 2.4 combined ratio points to 84%. Management noted a halving of cat losses and a light deterioration in favourable prior year development.
Premiums written in 2023 increased 31.8% over 2022 and included $5.3 billion in 2023 and $1.0 billion in 2022 from TransRe. Excluding TransRe, premiums written in 2023 would have increased $1.1 billion or 7.1% from 2022, which management attributed to net increases in new property business and higher rates.
Berkshire Hathaway primary insurance improved full year margins on premium growth nearly double that of LAE, despite signs of slippage Q4. Net underwriting earnings rose 3.5x year on year as the full-year combined ratio came down by 5.1 points to 92.0% despite 1.7 points of y/y slippage Q4. A 6.3 point decline in the loss ratio was pout to lower cats, changes in business mix and the inclusion of Allegheny units.
Combining all re/insurance operations net underwriting earnings swung from a fractional $30 million loss in 2022 to a $5.4 billion gain in the year just closed.
Did you get value from this story? Sign up to our free daily newsletters and get stories like this sent straight to your inbox.
