Last fall’s spate of three mega-catastrophe hurricanes that hit the U.S. has led to billion dollar losses for Berkshire Hathaway’s insurance companies.
“We currently estimate Berkshire’s losses from the three hurricanes to be $3 billion (or about $2 billion after tax),” Warren Buffett stated in his annual letter to shareholders. “If both that estimate and my industry estimate of $100 billion are close to accurate, our share of the industry loss was about 3%. I believe that percentage is also what we may reasonably expect to be our share of losses in future American mega-cats.”
Despite the scale of the disasters, Buffett noted that the impact on Berkshire was minor, with it reducing Berkshire’s GAAP net worth by less than 1%.
He went on to note that other reinsurers “suffered losses in net worth ranging from 7% to more than 15%.”
Buffett wrote that a mega-catastrophe hurricane that caused $400 billion in damage, which the company estimates has a 2% probability annually, would see Berkshire incurring losses in the $12 billion range.
A loss of that magnitude would in no way jeopardize the conglomerate, as it is below the annual income generated by Berkshire’s non-insurance activities.
© 2018 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.