Berkshire Hathaway suffers $3.4b hit on Hurricane Ian for insurance loss

Berkshire Hathaway suffered $3.4 billion in pre-tax losses from Hurricane Ian in the third quarter of 2022, part of a 2.6x increase in underwriting losses, but escaped the noose in P&C reinsurance where premium and prior-year adjustments delivered a fractional underwriting gain.

Berkshire Hathaway suffered a 2.6 time increase in underwriting losses to $962 million across its insurance operations, led by ever-deepening losses for retail auto insurer Geico, a widening loss in primary commercial and specialty as well as hits from select reinsurance segments.

But P&C reinsurance took it the other way, squeaking out a fractional pre-tax underwriting gain of $23 million, despite $1.9 billion in cat losses, chiefly Hurricane Ian. Cat losses helped push loss and adjustment expense up 15.6% y/y, adding 3.9 percentage points to the loss ratio.

Favourable prior period adjustment saved the day, adding $833 million to the Q3 tally, better than the $599 million net boost taken in Q3 2021.

P&C reinsurance premiums grew 11,2%, with management citing net increases in new property business and higher rates, partially offset by unfavourable FX translations.

That proved enough to cover the rise in loss cost and Berkshire additionally cut an eye-opening 40% from its underwriting expense to nearly halve its expense ratio. Mark the combined ratio in P&C reinsurance down 7.4 percentage points to a fractional technical profit at 99.4%.

Ultimately, the Berkshire Hathaway reinsurance segment was pushed to its underwriting loss of $110 million on $149 million in the standard losses from periodic payment annuities and $83 million from prior-period retroactive reinsurance.

Primary commercial and specialty insurance suffered $281 million in third quarter pre-tax underwriting losses, more than ten times the prior year period loss.

Loss and loss adjustment expense rose a heady 26% or $585 million, including around a $400 million increase in cat losses to a Q3 2022 tally of $660 million, chiefly Hurricane Ian.

That outpaced the gain in premium:  written premiums wrote 11.5% or $389 million while earned premiums were up a stronger 17.6% or $521 million.

The upshot:  primary commerc8al and specialty insurance suffered a 5.5 percentage point increase in its loss ratio to 81%. Underwriting expenses rose 26% to nudge up the expense ratio and the segment’s combined ratio was up 7.3 percentage points to a loss making 108.1%.