Category Archives: Berkshire Hathaway Reinsurance Group

Berkshire Hathaway Turns Away From Reinsurance Business

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Berkshire Hathaway’s long term love affair with the reinsurance continues to wane. Over the past few years, Warren Buffett, Charlie Munger and Ajit Jain all have spoken about the changes in profitability in the reinsurance market.

The latest proof comes as Berkshire Hathaway has dropped to sixth in A.M. Best’s annual special report on the global reinsurance industry.

“The reinsurance business not as good as it once was and is unlikely to get better,” Charlie Munger said at the 2015 Berkshire Hathaway annual meeting. “Money has come in, not because they want to be in reinsurance, but because it’s an uncorrelated asset class. We’re in it for the long haul.”

“What we’ve seen from Berkshire Hathaway is that they recognize that reinsurance opportunities are not where they need to be from a pricing perspective,” A.M. Best Vice President Robert DeRose said. “They have pulled capacity back from that particular aspect of the market and they are building out insurance strategies.”

DeRose stated that Berkshire Hathaway is specifically building out that capacity through Berkshire Hathaway Specialty Insurance Co. Also, Berkshire Hathaway, through its General Reinsurance Corp. franchise, has entered into a five-year agreement under which Transatlantic Reinsurance Co. will serve as its exclusive underwriter for U.S. and Canadian property/casualty treaty reinsurance business.

© 2016 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.

Warren Buffett’s Greatest Insurance Investment

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What was Warren Buffett’s greatest insurance investment? Was it the purchase of GEICO? How about National Indemnity?

According to Buffett, it was none of those. It was the hiring of Ajit Jain.

In an interview with Best’s Review, Warren Buffett says he made one of his best investments when he chose Ajit Jain to run his reinsurance business nearly 30 years ago. Jain, who is considered one of the front-runners to succeed Buffett as the head of Berkshire Hathaway, is one of the insurance leaders profiled in the July issue.

Jain was hired by Buffett in 1986, and at the time he was 35-years-old and had little experience in the reinsurance business.

Today, Jain is one of Buffett’s most trusted managers, having built Berkshire Hathaway Reinsurance Group into a reinsurance insurance powerhouse with $44 billion in float.

In April, he was given additional duties overseeing Gen Re after CEO Tad Montross retired.

Sounds like a good investment indeed.

© 2016 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.

Berkshire Cuts Munich Re Stake, Again

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Berkshire Hathaway continues to see the reinsurance business as a low return business and is pulling back from the sector in its own underwriting and in its ownership stake in other underwriters.

Berkshire has again cut its stake in Munich, Germany-based reinsurer Munich Re, this time from 9.7 percent to 4.6 percent. It previously cut its stake from 12 percent to just over 9 percent earlier in 2015.

Berkshire’s own reinsurance business has been less than stellar this year with Berkshire reporting$155 million in losses from storm damage on Australia’s east coast in the 2nd quarter of 2015.

Charlie Says

“The reinsurance business not as good as it once was and is unlikely to get better,” Charlie Munger said at the 2015 Berkshire Hathaway annual meeting. “Money has come in, not because they want to be in reinsurance, but because it’s an uncorrelated asset class. We’re in it for the long haul.”

Uncorrelated (also called non-correlated) asset classes are assets that move in the opposite direction of a particular asset class, thus helping investors reduce risk in exchange for lower upside performance.

Munger’s words were echoed by Ajit Jain, who is the head of Berkshire Hathaway Reinsurance. “What was a very lucrative business is no longer a very lucrative business going forward” Jain was quoted in The Wall Street Journal.

© 2015 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.

Berkshire Slashes Stake in Munich Re

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For the past four months, Berkshire Hathaway’s leadership has been expressing its displeasure with the state of the reinsurance market. Now, reinsurer Munich Re has reported that Berkshire has cut its stake in the company from roughly 12% down to 9%.

“It’s a business whose prospects have turned for the worse and there’s not much we can do about it,” Warren Buffett said at the 2015 Berkshire Hathaway annual meeting.

“The reinsurance business not as good as it once was and is unlikely to get better,” Charlie Munger added. “Money has come in, not because they want to be in reinsurance, but because it’s an uncorrelated asset class. We’re in it for the long haul.”

Buffett’s and Munger’s words were in line with those of Ajit Jain, who is the head of Berkshire Hathaway Reinsurance.

“What was a very lucrative business is no longer a very lucrative business going forward,” Jain said in July in The Wall Street Journal.

Berkshire originally disclosed a stake in Munich Re in January 2010, when it reported a 3.045% stake in the German reinsurer.

© 2015 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.

Berkshire Rises in Reinsurance Ranks Even as Business Softens

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Berkshire has jumped ahead of SCOR SE into fourth place among the top 50 insurers in A. M. Best’s Global Reinsurance Segment Review.

Ahead of Berkshire are Munich Reinsurance Company, Swiss Re Ltd., and Hannover Rueckversicherung AG, in that order.

Lloyd’s of London’s international casualty reinsurance market dropped from fourth place to sixth. The rankings are based on premiums written in 2014.

Berkshire’s gross written premiums rose from $12.776 billion in 2013 to $14.919 billion in 2014.

Profits Harder to Come By

Through its Berkshire Hathaway Reinsurance Group, Berkshire provides reinsurance to Suncorp and Insurance Australia Group, and in the 2nd quarter of 2015 reported $155 million in losses from April and May storm damage on Australia’s east coast.

Buffett, Munger and Jain Cool on Reinsurance

Storms or no storms, Berkshire is not generating the profits it used to from reinsurance.

“The reinsurance business not as good as it once was and is unlikely to get better,” Charlie Munger said at the 2015 Berkshire Hathaway annual meeting. “Money has come in, not because they want to be in reinsurance, but because it’s an uncorrelated asset class. We’re in it for the long haul.”

“It’s a business whose prospects have turned for the worse and there’s not much we can do about it,” Warren Buffett said.

Uncorrelated (also called non-correlated) asset classes are assets that move in the opposite direction of a particular asset class, thus helping investors reduce risk in exchange for lower upside performance.

Buffett’s and Munger’s words were echoed by Ajit Jain, who is the head of Berkshire Hathaway Reinsurance.

“What was a very lucrative business is no longer a very lucrative business going forward,” Jain was quoted in early July in The Wall Street Journal.

Remaining Disciplined

Traditionally Berkshire has been a disciplined underwriter. Warren Buffett has always stressed that it is better to write fewer premiums in a given year than to give in to chasing short-term revenues that lead to long-term losses.

A recent survey of the Lloyd’s Market Association’s reinsurers found that 95% of survey respondents indicated a relaxation of reinsurance contract terms and conditions in the international casualty market. Additionally, 39% felt the loosening of contract terms was having a material impact on the amount of underwriter’s exposure.

Hopefully, Berkshire will remain disciplined and not fall into that trap.

© 2015 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.

Warren Buffett Downplays Global Warming’s Impact on Insurers

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Despite nonstop alarm bells from the media about the future costs of global warming, Warren Buffett downplayed its impact on Berkshire Hathaway’s insurance units during his 5-hour question and answer period at the Berkshire Hathaway annual meeting on May 2, 2015.

It’s not that Buffett thinks that climate change isn’t real, it’s just that its long term impacts are not an immediate concern in the insurance business because prices reset annually, and can always be adjusted upward after a bad year.

“We set it one year at a time. I find nothing on a yearly basis that makes me change my prices,” Buffett noted.

No 50-Year Policies

“That doesn’t mean it isn’t a threat to humanity and isn’t terribly important,” he added. “If I was writing a 50-year windstorm policy in Florida…”

What is of more immediate impact to insurers is the quality of the policyholders. It’s something that insurance companies can’t ignore just to rack great sales figures.

“You insure “Marvin the Torch,” you are going to have a lot more risk than global warming,” Buffett explained. “That building’s going to go!”

© 2015 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.

Buffett Quells Talk of Big Insurance Takeovers

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As Berkshire continues to expand its insurance empire, including just last week adding a new Australasia Region to Berkshire Hathaway Specialty Insurance, rumors have swelled that the company might be ready to put some of its $30 billion in cash to work through a major insurance company acquisition.

At the Berkshire Hathaway annual meeting on May 2, Buffett dismissed such speculation. He noted that it is “almost certain that we will not take over a large commercial insurance company.”

A SIFI?

Berkshire’s continued growth in the insurance industry, which in addition to Berkshire Hathaway Specialty Insurance includes GEICO, National Indemnity, and Berkshire Hathaway Reinsurance Group, has brought questions as to whether Berkshire is now a Systematically Important Financial Institution (SIFI).

“There is no reason, in logic or in terms of what we’ve heard, to think that Berkshire would be designated as a SIFI,” Buffett noted. “I do not think Berkshire comes within miles of qualifying as a SIFI.”

While Berkshire Hathaway continues to build its own insurance companies, including bringing on board four former AIG executives for its new Australia-based unit, Buffett notes that insurance is only about 30-percent of Berkshire’s total business, with business units, such as BNSF Railway, being much larger.

The insurance and transportation units helped propel Berkshire’s 2015 first quarter earnings up almost 10% over first quarter 2014, with lower fuel costs for BNSF a particular factor.

© 2015 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.

Vhi Healthcare Inks New 4-Year Reinsurance Deal With Berkshire Hathaway

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Irish government-owned medical insurer Vhi Healthcare has extended its reinsurance accord with Berkshire Hathaway’s Berkshire Hathaway Reinsurance Group.

Vhi Healthcare has submitted an application for authorization to the Central Bank of Ireland.

“Putting in place a long-term reinsurance arrangement and demonstrating that the business was sustainable in the long term was critical in making our submission to the central bank,” explained Vhi Chief Executive Officer John O’Dwyer.

Follow-Up to One-Year Deal

The accord follows a one-year deal in July 2013 that provided reinsurance on half of Vhi Healthcare’s policies.

O’Dwyer pointed to the company’s improving financials and noted that “Vhi Healthcare continued to perform well in a challenging market in 2013.”

He also noted the new accord keeps taxpayers from having to put €200m into the company and will keep down premium hikes for the insurer’s over million customers.

Eliminates EU Reserves Problems

The new reinsurance accord with Berkshire Hathaway should forestall fines from the EU over the failure of Vhi to put up sufficient reserves.

© 2014 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.