Reinsurance fluctuations hit Berkshire Hathaway Q1 profits
Fluctuations in the profitably of its reinsurance businesses contributed to a drop in earnings at Berkshire Hathaway’s first quarter results. Its unit Berkshire Hathaway Reinsurance Group in particular saw a severe fall in its pre-tax profits due to fluctuations in currency exchange rates and one off deals in the first quarter last year.
The Berkshire Hathaway group as a whole posted net earnings of $4.7 billion compared with $5 billion last year. Some of the decline could be attributed to the insurance group where pre-tax profits fell to almost $1.7 billion in the quarter down from $2.4 billion a year earlier.
The biggest decline within this was in Berkshire Hathaway Reinsurance Group where pre-tax profits declined to $183 million, a big fall compared with the $974 million it made a year earlier. GEICO, in comparison, improved its profits to $353 million compared with $266 million the year before.
Premiums earned in its insurance group as a whole, which includes GEICO, General Re and Berkshire Hathaway Reinsurance Group, were stable at $10.3 billion although within this, GEICO enjoyed growth of almost 12 percent to $4.8 billion while Berkshire Hathaway Reinsurance Group shrank by almost 25 percent to $2 billion.
The company noted that the level of business written in its reinsurance divisions will vary depending on market conditions and the adequacy of rates. It said it has constrained the amount of business written in recent years but it has the capacity and desire to write substantially more business if appropriate pricing can be obtained.
The company said the difference in profits in Berkshire Hathaway Reinsurance Group was mainly within its multi-line property/casualty arm, which generated a pre-tax underwriting gain of $126 million compared with $551 million a year earlier. It said that underwriting results within this unit can be periodically impacted by catastrophe losses and foreign currency transaction gains and losses associated with the valuation of certain reinsurance liabilities of US-based subsidiaries denominated in foreign currencies.
Specifically, these results included foreign currency exchange rate losses of $37 million for the first quarter of 2014 compared with gains of $189 million in the first quarter of 2013. Also, the results in the first quarter of 2013 included a net gain of $235 million attributable to a large Swiss Re quota share contract, which largely related to decreased estimated ultimate liabilities for prior year losses. This contract had a negligible impact on the 2014 first quarter results, however.
