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5 November 2018Insurance

Primary units boost results at Berkshire Hathaway; Gen Re enjoys strong growth

Berkshire Hathaway’s insurance entities posted an underwriting profit of $441 million in the third quarter of 2018, a big turnaround on the same period a year earlier when they made a loss of $1.44 billion thanks to several large cat events.

In the first nine months of the year its insurance units made an underwriting profit of $1.79 billion, compared with a loss of $1.7 billion in the same period a year earlier.

However, drilling down into the results shows that these positive results were driven by its primary operations. Auto insurer GEICO made an underwriting profit of $627 million in the third quarter and Berkshire Hathaway Primary Group an underwriting profit of $135 million. In contrast, Berkshire Hathaway Reinsurance Group, which includes Gen Re and National Indemnity Company (NICO), made a loss of $163 million.

The equivalent results for the first nine months show GEICO making a profit of $1.97 billion, Berkshire Hathaway Primary Group a profit of $468 million and Berkshire Hathaway Reinsurance Group a loss of $124 million.

It noted that it incurred estimated pre-tax losses of $372 million from two significant catastrophe events in the third quarter of 2018. It also noted that, in October 2018, Hurricane Michael hit the Southeastern US. Incurred losses in the fourth quarter from this event are currently estimated to be in the $350 million to $550 million range.

NICO Group’s premiums earned in the third quarter and first nine months of 2018 decreased 11.5 percent and 2.7 percent, respectively, compared to 2017. But it said this was because premiums earned in the third quarter of 2017 included additional amounts related to certain contracts where policy limits were fully exhausted due to catastrophe losses during the quarter. It said the effect of significant catastrophe losses in 2018 on the timing of premiums earned was relatively insignificant.

For the first nine months of 2018, approximately 40 percent of NICO Group’s premiums earned derived from a 10-year, 20 percent quota-share contract with Insurance Australia Group that expires in 2025.

General Re Group’s premiums earned in the third quarter and first nine months of 2018 increased $236 million (28 percent) and $810 million (35.6 percent), respectively, compared to 2017. It said the increases reflected higher direct and broker markets business, derived primarily from new business and increased participations for renewal business in both property and casualty lines.

On a combined basis, its property/casualty reinsurance business generated pre-tax underwriting gains of $67 million and $535 million in the third quarter and first nine months of 2018, respectively, and pre-tax losses of approximately $1.5 billion in the third quarter and $1.9 billion in the first nine months of 2017.

In terms of its retroactive reinsurance book of business, premiums earned in the first nine months of 2017 included $10.2 billion from an aggregate excess-of-loss retroactive reinsurance agreement with various subsidiaries of American International Group, which became effective on February 2, 2017. It also recorded losses and loss adjustment expenses incurred of $10.2 billion at the inception of the AIG Agreement, representing its initial estimate of the unpaid losses and loss adjustment expenses assumed of $16.4 billion, partly offset by an initial deferred charge asset of $6.2 billion.

It explained that, on the effective date, the AIG Agreement had no effect on its pre-tax underwriting results. Pre-tax underwriting losses from retroactive reinsurance contracts in the third quarter and first nine months of 2018 were $246 million and $704 million, respectively, compared to $287 million and $881 million, respectively, in the same periods in 2017.

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