Thursday, March 8, 2018

Re/Insurance: "Berkshire Hathaway can easily weather a $400bn mega catastrophe: Buffett"

Warren has sorta made GenRe the reinsurer of last resort.
At a price.
From Artemis, Feb. 27:
Berkshire Hathaway’s insurance and reinsurance businesses are the most prepared to handle a $400 billion mega catastrophe loss event, while the rest of the property & casualty industry may be out of business following such an extreme loss, according to Warren Buffett.

After the $100 billion or so of 2017 catastrophe losses, Warren Buffett’s insurance and reinsurance driven conglomerate Berkshire Hathaway reported catastrophe losses of $3 billion from the major hurricanes, while that alongside other losses and reserving sent his property and casualty business to a $3.2 billion loss, before tax.

As ever, Buffett delivered his thoughts in his awaited annual letter to shareholders, discussing issues ranging from the founding of his firm, to equities, his infamous investment bets and also the catastrophe loss activity of 2017.

Explaining that he has always warned his shareholders that catastrophes would eventually strike his re/insurance businesses, Buffett said, “I have warned you, however, that we have been fortunate in recent years and that the catastrophe-light period the industry was experiencing was not a new norm. Last September drove home that point, as three significant hurricanes hit Texas, Florida and Puerto Rico.

“My guess at this time is that the insured losses arising from the hurricanes are $100 billion or so. That figure, however, could be far off the mark. The pattern with most mega-catastrophes has been that initial loss estimates ran low.

“Ignorance, wishful thinking or, occasionally, downright fraud can deliver inaccurate figures about an insurer’s financial condition for a very long time.”

While the major catastrophes of 2017 were seen as sufficient to boost pricing a little at the renewals, Buffett notes that for his conglomerate even a mega catastrophe costing the insurance and reinsurance industry $400 billion would be manageable for his firm.

Berkshire Hathaway estimates its losses from the hurricanes at $3 billion, $2 billion after tax, as a result it estimates its share of the industry losses at roughly 3%, based on a $100 billion industry insured loss.

“I believe that percentage is also what we may reasonably expect to be our share of losses in future American mega-cats,” Buffett said....MUCH MORE
A couple of our BRK posts that may be of interest:

Insurance: "CEO FORUM: Gen Re's Tad Montross on model dependency" (BRK.A)
"Re/insurance. The engine of Berkshire Hathaway: Warren Buffett" (BRK) Plus a Special Bonus!