Berkshire Q1 profit collapses as Geico crashes head-on with inflation
Berkshire Hathaway’s insurance operations suffered a 94% decline in first quarter underwriting profits to a mere $47 million as claims and inflation pushed auto insurance unit Geico to a loss while profits in the primary insurance group more than halved.
The auto insurer Geico swung to a first quarter pre-tax underwriting loss of $178 million, down $1.2 billion from the prior year period’s profit with management blaming “increased claims severity, primarily due to significant cost inflation in automobile markets.”
“Increases in used car prices are producing increased claims severities on total losses and shortages of car parts are contributing to increased claims severity on partial losses,” management said. “In addition, injury claims severities continue to trend higher than general inflation rates.”
Claims and loss adjustment expense at the unit rose 32.2% year on year to $8.5 billion, well ahead of the 7.1% annual increase in earned premiums or the 2.6% increase on the premiums written in the quarter. Revenue growth was a rate thing as volumes proved “relatively unchanged.”
Those lop-sided dynamics put the loss ratio up a notable 17.0 percentage points to 89.4%, management admitted.
Frequency rose across coverages at low single digit paces, from 10-11% for property damage, 15-16% for collision, 12-13% for bodily injury and 14-15% for personal injury. Severity rose in ranges from the mid-single digits to as much as 20-22% for collision coverage.
Outside of retail auto, the Berkshire Hathaway primary group, including i.a. unit Berkshire Hathaway Specialty Insurance, suffered a 55% year on year decline in Q1 pre-tax underwriting earnings to $92 million.
Written premiums were up by 16.6% to $3.4 billion, but trailed the 23% growth in losses and loss adjustment expense (despite a halving of cat losses to $75 million) and the 25.5% increase in underwriting expense. The loss ratio for the primary insurance group rose 3.2 percentage points over the prior year period. Favourable prior year adjustments had offered $156 million more in Q1 2021 than they mustered in Q1 2022.
Only the Berkshire Hathaway reinsurance group managed to improve earnings versus the prior year tally thanks to improved earnings in the property and casualty segment versus earnings deterioration or outright losses elsewhere.
P&C reinsurance took only fractional premium growth, but the loss ratio came down by 3.0 percentage points on a 4.2% outright decline in loss and loss adjustment expense. Favourable prior period adjustments offered more gain than in the prior year period.
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