Monday, November 6, 2017

"Hurricanes Drag Down Berkshire's Quarterly Earnings" (BRK)

Berkshire, unlike some of the re/insurance competition, priced their product closer to the reality of claims exposure and might even be (very privately) wishing for more cats to flush out the underpricers and allow some premium increases on upcoming renewals.

From Bloomberg, Nov. 3:
  • Natural disasters dragged down earnings by almost $2 billion
  • Cash pile increases to $109 billion as of end of September
Mother Nature took a toll on Berkshire Hathaway Inc. in the third quarter.

Natural disasters including Hurricanes Harvey, Irma and Maria hit Warren Buffett’s insurance-focused conglomerate hard, dragging down earnings by almost $2 billion and overshadowing positive results elsewhere.

A surge in insurance claims led to the third consecutive quarterly underwriting loss, putting Berkshire on track to have an annual loss by that measure for the first time since 2002.

Before this year, Berkshire’s insurance businesses had posted $18 billion in underwriting income since 2002. They’d also accumulated more than $90 billion in float, the premiums that carriers get to invest while waiting to pay claims. That’s been essential to Berkshire’s success, by giving the company a pile of cash to fuel Buffett’s stock picks and acquisitions.

It was a different story in the third quarter. Operating earnings at the conglomerate plunged 29 percent to $3.4 billion in the period, in large part because of natural disasters, according to a statement Friday. On a per share basis, the company missed analysts’ estimates.

“I was anticipating a big number,” but this was higher than I thought we’d see, said Jim Shanahan, an analyst at Edward Jones. Still, he said, investors should be focused on the potential for Berkshire and other insurers to raise prices going forward.

The damage at Berkshire’s insurance businesses was widespread. Its namesake reinsurance group absorbed the largest share of the storm costs, as well as expenses related to an earthquake in Mexico. But there were also underwriting losses at Geico and Gen Re. The primary group, which includes several carriers, posted an underwriting profit.

The insurance industry is expected to shoulder as much as $120 billion in claims from one of the worst hurricane seasons on record, according to estimates from catastrophe modeling firm RMS....MUCH MORE