Berkshire Hathaway ups Q2 P&C Re gain on TransRe buy; margin slips
Berkshire Hathaway increased pre-tax underwriting profits just over 15% in its P&C reinsurance division to $1.12 billion, despite a slip in underwriting margins, insufficient to overcome declining earnings in other reinsurance lines.
Earnings progressions in P&C reinsurance have wobbled some on the consolidation of TransRe, taken in Berkshire's late 2022 acquisition of Alleghany Corporation. Expense ratios have risen rapidly, offset in part by reduced cat loss. Mark the combined ratio for P&C reinsurance operations at 78.9% in Q2, up 6.5 points from the prior year period.
Net earned premiums in P&C reinsurance rose 51%, chiefly on the acquisition. Counting out an approximate tally of those newly consolidated sums, net earned premiums would have been up 17%, calculations from Q2 sums indicated.
Written premiums, inclusive of the Alleghany acquisition, were up 41% year on year, the report indicated. Berkshire offered no indication of the impact of consolidation.
Loss and loss adjustment expense, while up on the consolidation, brought the loss ratio down by six full points year on year in Q2 and 4.1 points after the first six months. Indicatively, the y/y rise in loss expense in Q2 at 35% was considerably below the 47% increase seen in Q1, the first quarter of full consolidation of Alleghany units.
Speaking to the H1 loss tally, Berkshire Hathaway said cat losses were down by some 16% on the newly consolidated group, taking a 4.1 points - just under half - out of the cat loss ratio, calculations indicated.
Favourable prior period reserve development, also inclusive of TransRe, was up on account of the consolidation, but flat as a share of the enlarged business as a whole.
Underwriting expenses are most heavily in flux on the consolidation of TransRe, nearly doubling the listed expense ratios. Management blamed changes in foreign currency exchange impact and changes in business mix following the consolidation.
With earnings down in the smallish life reinsurance wing and deepening losses for the retrocession and annuity business, total pre-tax underwriting profits across Berkshire Hathaway's reinsurance operations fell 27.5% to $827 million in Q2.
Taken together with a continued swing to profits for the automotive insurer Geico and a 12% increase in primary insurance earnings, Berkshire Hathaway could brag of a 74% increase in net underwriting earnings across its group.
Add in results from railroads, Berkshire's energy sector holdings, the impact of Warren Buffett's investing acumen and the return of bond markets from the Q2 2022 mayhem, and total net profits attributable to Berkshire Hathaway shareholders swung to $35.9 billion from a prior period loss of $43.6 billion.
Berkshire Hathaway closed the purchase of Alleghany Corporation, including the key reinsurance unit TransRe, on October 19, 2022.
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