Category: Insurance

Berkshire Completes PLICO Acquisition

Post author By David Mazor
Post date September 15, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s MedPro Group (MedPro) has announced the completion of its acquisition of Oklahoma City-based PLICO, which serves approximately 2,200 healthcare providers in Oklahoma, and is the largest healthcare liability insurer in Oklahoma.

The company notes that the transaction process – from signing to closing – took less than 60 days, and that the PLICO and MedPro teams have already begun working cohesively to serve Oklahoma healthcare providers.

PLICO’s principal operations will remain in Oklahoma City. Carl Hook, M.D., will remain as CEO while also serving as Chair of PLICO’s Advisory Board, and long-time PLICO executive Sherry Hayworth will serve as President.

Founded in 1979, PLICO is the largest healthcare liability insurer in Oklahoma, and has annualized gross written premiums of about $30 million, and had a statutory surplus of over $60 million at year-end of 2014.

The “bolt-on” acquisition is only the second acquisition for MedPro since Berkshire Hathaway acquired it a decade ago.

PLICO is not currently rated by leading insurance rater, A.M. Best, but is expected to apply for financial strength ratings and be positioned to offer additional products and services.

Prior to the PLICO acquisition, Berkshire’s MedPro had $874 million in annual premiums and more than 140,000 customers.

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.

Tags Insurance

Berkshire Rises in Reinsurance Ranks Even as Business Softens

Post author By David Mazor
Post date September 4, 2015

(BRK.A), (BRK.B)

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.

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Tags Ajit Jain, Charlie Munger, Insurance

Insurance National indemnity

Australian Insurer IAG Grants Non-Dilution Rights to Berkshire

Post author By David Mazor
Post date August 21, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s new minority stake in the Australian insurer Insurance Australia Group Limited (IAG) includes non-dilution rights that have been approved by the Australian Securities Exchange (ASX).

Under a waiver granted by ASX, IAG has agreed to give non-dilution rights to Berkshire’s wholly-owned National Indemnity Company (NICO), granting the company the right to buy shares at the same price as other investors if there is an issuance of securities.

In June of 2015, Berkshire through NICO paid A$500 million (US$387.8 million) for 3.7% of IAG.

Under the terms of the agreement, IAG agreed to give NICO 20% of IAG’s premiums in exchange for paying 20% of its claims over the next 10 years, a move that right off the bat brings NICO $1.78 billion of premium annually.

The IAG waiver was one of twelve waivers granted by ASX in the past year. Other companies receiving waivers included Aurelia Metals, Clancy Exploration, and Ensogo Limited.

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Insurance

Reinsurance Losses Swamps Berkshire in Australia

Post author By David Mazor
Post date August 18, 2015

(BRK.A), (BRK.B)

The old saying is “when it rains, it pours,” and boy did it rain in Australia this April and May.

It’s no secret that Charlie Munger has cooled on the reinsurance business, and recent losses in Australia only add to a situation where profits are hard to come by due to increased competition.

In the 2nd quarter of 2015, Berkshire reported $155 million in losses from storm damage on Australia’s east coast.

Through its Berkshire Hathaway Reinsurance Group, Berkshire provides reinsurance to Suncorp and Insurance Australia Group.

A Double-Whammy Brings Billion-Dollar Losses

A severe late-April storm that hit Sidney cut off roads, washed away houses and brought 13,000 calls for help. A second severe storm in the beginning of May hit south east Queensland. The storm gave Brisbane its wettest day in 175 years.

The combined storms brought $1.55 billion in claims from more than 20,000 policy holders.

Munger Cool on Reinsurance

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

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.

Tags Charlie Munger, Insurance

Insurance Minority Stock Positions

Berkshire Gains Big from Life Insurance Merger

Post author By David Mazor
Post date August 13, 2015

(BRK.A), (BRK.B)

In a consolidation in the insurance industry, Berkshire Hathaway’s minority position in Symetra Financial Corporation will be bought out as the insurance company merges with Sumitomo Life Insurance Company.

A Big Win for Berkshire

The merger will give Berkshire a 32% boost on its Symetra stake, as it receives an all cash offer for its shares. The tender offer will give Berkshire a windfall worth $144 million.

Berkshire and other Symetra shareholders will receive $32.00 per share in cash at closing, plus a previously announced special dividend of $0.50 per share in cash, which is payable on August 28, 2015 to Symetra shareholders of record as of August 10, 2015.

The total combined transaction consideration of $32.50 per share is approximately $3.8 billion in aggregate and represents a 32% premium over Symetra’s average stock price of $24.64 for the 30 days ending August 5, 2015.

Berkshire Hathaway currently owns 17% of Symetra and has agreed to vote in favor of the transaction.

White Mountains Insurance Group, Ltd., which owns 18% of Symetra, has also granted its approval for the merger.

Best Wishes, Warren

Warren Buffett in a statement said, “Tom and his management team have done a good job running the company and have executed a great deal for shareholders. I wish them the best for future success under their new owners.”

Founded in 1907, Sumitomo Life provides traditional mortality life insurance, nursing care, medical care and retirement plans through sales representatives, insurance outlets, the Internet and bancassurance. As of March 31, 2015, Sumitomo Life had $229 billion in assets, approximately 6.8 million customers and 42,000 employees.

Symetra was founded in 1957 and is based in Bellevue, Washington. The company provides employee benefits, annuities and life insurance through a national network of benefits consultants, financial institutions and independent agents and advisors. As of June 30, 2015, Symetra had $34 billion in assets, approximately 1.7 million customers, and 1,400 employees nationwide.

Symetra will become Sumitomo Life’s platform in the U.S., where Sumitomo Life does not currently have a material operational presence. Symetra’s President and Chief Executive Officer, Thomas M. Marra, and the current management team will continue to lead the business from Symetra’s headquarters in Bellevue. Symetra will maintain its current brand, employees, distribution channels and product mix.

Tags Insurance

GEICO Insurance

GEICO Expands Availability of Ridesharing Coverage to Pennsylvania drivers

Post author By David Mazor
Post date August 6, 2015

(BRK.A), (BRK.B)

Recognizing the growing popularity of ridesharing, which has seen Uber go from zero revenue in 2009 to over $10 billion today, and the proliferation of a host of competitors, including Lyft, Sidecar, and Carma, automobile insurer GEICO is continuing to expand the availability of its ridesharing insurance coverage.

Real-time ridesharing that uses an automated system to match drivers and riders has in a few short years moved from a fringe mode of transportation to a powerful alternative that has taxi and car services up in arms. Along the way, it has required new forms of liability coverage that are different than those offered to both personal and commercial drives.

GEICO first entered the market in February in Virginia, and has been selling a ridesharing product in Georgia, Virginia, Maryland and Texas, and is now expanding its ridesharing offering to drivers in Pennsylvania.

Replaces the Personal Auto Policy

GEICO’s ridesharing product replaces the driver’s personal auto policy and provides coverage both for personal and ridesharing use.

The coverage is billed as a Hybrid Policy that regardless of whether the driver is driving for personal needs, or is picking up a paid rider, provides coverage for liability, property damage, bodily injury, first party coverage, collision coverage, comprehensive physical damage coverage, and medical payments.

New and existing drivers that have been approved to drive for Uber (UberX and UberXL), Lyft, Sidecar and other services in Pennsylvania can now get the insurance coverage.

“With the rapid growth of ridesharing and Transportation Network Companies in Pennsylvania, we are excited to introduce a product that is specifically designed to meet the needs of ridesharing consumers,” said Nancy Pierce, GEICO regional vice president. “Our product offers customers a complete insurance solution at an affordable price along with the outstanding customer service they can expect from GEICO.”

“Rideshare drivers have unique insurance needs that go well beyond a traditional auto insurance policy,” said Othello Powell, director of GEICO commercial lines. “We created this product as a low-cost solution that covers both personal and ridesharing use and other on-demand services.”

GEICO says it will offer the coverage through GEICO Commercial at a price significantly lower than taxi and commercial rates.

Tags GEICO

Insurance

Berkshire Acquires Healthcare Liability Insurer PLICO, Inc.

Post author By David Mazor
Post date July 10, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway has agreed to acquire healthcare liability insurer PLICO, Inc.

The deal between Berkshire Hathaway’s MedPro Group (MedPro) and the Oklahoma State Medical Association (OSMA) will see Berkshire take over the Oklahoma City-based PLICO, which serves approximately 2200 healthcare providers in Oklahoma, and is the largest healthcare liability insurer in Oklahoma.

Founded in 1979, PLICO has annualized gross written premiums of about $30 million, and had a statutory surplus of over $60 million at year-end of 2014.

The “bolt-on” acquisition is only the second acquisition for MedPro since Berkshire Hathaway acquired it a decade ago.

“Joining Berkshire Hathaway’s MedPro Group emboldens PLICO’s expansion efforts by providing additional opportunities not available to us before,” said Carl Hook, M.D., President and CEO of PLICO. “MedPro shares our commitment to always put the insured first, and this transaction will give PLICO the unquestioned financial strength and additional product options to better serve local healthcare providers and entities without sacrificing our reputation for high-quality customer service and relational focus. Both PLICO and MedPro insureds will benefit greatly from our collaboration, which leverages the best combination of national resources with local expertise and service.”

PLICO is not currently rated by leading insurance rater, A.M. Best, but is expected to apply for financial strength ratings and be positioned to offer additional products and services.

Prior to the PLICO acquisition, Berkshire’s MedPro had $874 million in annual premiums and more than 140,000 customers.

Another Bolt-On Acquisition

Berkshire Hathaway has a two-track approach to acquisitions. One track is major acquisitions, such as the purchase of BNSF Railway, Heinz, and Van Tuyl Group, among others, which are multibillion dollar acquisitions that usually become new stand-alone companies under the Berkshire Hathaway umbrella. The other track is what Berkshire labels “bolt-on” acquisitions that add additional companies to Berkshire’s existing companies. While most of these bolt-on acquisitions are small, at least in relative terms of adding to a $360 billion company, they add up, and Berkshire does over $3 billion in total bolt-on acquisitions a year in the aggregate. These acquisitions, which have in recent years included companies such as Beveridge dispenser-maker Cornelius (added to the Marmon Group) and Meadowbrook Meat Company (added to McLane Company), as just two examples, continuously add significant market-share and new capabilities to Berkshire’s companies.

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Berkshire Hathaway Specialty Insurance Insurance

New Zealand Newest Country for Berkshire Hathaway Specialty Insurance

Post author By David Mazor
Post date July 2, 2015

(BRK.A), (BRK.B)

New Zealand is the latest country for Berkshire Hathaway Specialty Insurance Company (BHSI). The insurer has received its license from the Reserve Bank of New Zealand and is underwriting property and casualty insurance through its new office in Auckland. BHSI can also offer Marine Cargo coverage in New Zealand, with Australia-based Mark Dixon also having New Zealand responsibility.

“We are pleased to bring the financially strong capacity and customer-centric underwriting and claims handling of BHSI to New Zealand. We open our doors in Auckland with a highly experienced team, a broad appetite for property and casualty risks, and a commitment to providing responsive and enduring solutions to the marketplace,” said Peter Eastwood, Global President and Chief Executive Officer of BHSI.

In April, BHSI received its insurance license to provide all lines of General Business in Australia, and established operations in Sydney. Chris Colahan was named President of BHSI’s Australasia Region. Four executives from AIG were also brought on board. In June, the company added casualty and executive and professional lines for hospitals and medical practices and facilities.

Country Manager for New Zealand Cameron McLisky said “I am delighted to introduce BHSI to the New Zealand marketplace. We have assembled an excellent team and look forward to collaborating with our brokers and insureds to provide stable, flexible solutions along with the quality service that is a hallmark of BHSI operations everywhere.”

Cameron comes to BHSI with two decades of industry experience. He was most recently Regional Financial Lines Manager at AIG Asia Pacific. Before that he was Regional Offices Manager at AIG UK Ltd; Australian Financial Lines Manager at AIG Australia; and Financial Lines Manager at AIG in New Zealand. He was also Casualty Manager at Gen Re in Auckland. He holds a Bachelor of Laws (LLB) degree from the University of Canterbury in Christchurch.

Tags Berkshire Hathaway Specialty Insurance, Insurance

Charlie Munger Insurance

Charlie Munger Cools on Reinsurance Business

Post author By David Mazor
Post date June 30, 2015

(BRK.A), (BRK.B)

Charlie Munger is less than excited about the reinsurance business these days, as Berkshire Hathaway’s reinsurance business, Gen Re, suffered an aggregate pretax underwriting losses of $14 million in the first quarter of 2015. The loss compares to a $101 million gain during the first quarter of 2014.

The company’s combined ratio deteriorated to 103.0% from 94.6%, and the total underwriting losses included $9 million in workers’ compensation.

Gen Re has $14 billion in capital and $6 billion in premiums.

More Competition Brings Lower Returns

The losses reflect increased competition for reinsurance underwriting.

“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 noted. “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.”

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 was recently quoted in the Wall Street Journal.

Meyer Shields, managing director at Keefe, Bruyette & Woods Inc., is also pessimistic about Gen Re’s near-term prospects.

“We expect Gen Re and (Berkshire Hathaway Reinsurance Group’s) premium volumes and margins to generally decline in the remainder of 2015 and beyond, reflecting enduring reinsurance price competition and some fallout from Berkshire’s increasing pursuit of primary premium volumes at the likely expense of some former cedents.”

Tags Charlie Munger, Insurance

Insurance National indemnity

Berkshire’s Commercial Insurance Arm Grabs Market Share

Post author By David Mazor
Post date June 25, 2015

(BRK.A), (BRK.B)

Berkshire Hathaway’s continued push into commercial insurance lines in the U. S. market is grabbing market share from smaller insurers.

According to a new report by Fitch Ratings, Berkshire Hathaway Homestate Companies (BHHC) was the 10th largest U.S. commercial lines insurer in 2014 based on direct premium volume, with direct premium reaching $5.6 billion through a combination of organic growth and acquisitions.

From Regional to National

Based in Omaha, Nebraska, BHHC was originally incorporated in 1970 as Cornhusker Casualty. In 1981, the company added the Insurance Company of Iowa–an affiliated Iowa-domiciled insurance company. Through further acquisitions it grew into eight separately managed regional insurance companies located across the United States, each with its own local underwriting and management presence in its respective territories–a core value BHHC continues to embody. In the late 1990s, as it gained a national presence, the remaining six companies began operating under the shared brand identity of Berkshire Hathaway Homestate Companies.

Fitch notes that Workers compensation insurance has been a big part of Berkshire’s growth in this area, with the company becoming the seventh largest U.S. writer in 2014.

An Impact on Smaller Insurers

Fitch also reported that Berkshire’s growth could impact smaller insurers.

“Diverse commercial business segments and substantial capital resources position BRK for further market share growth that could marginalize smaller commercial lines underwriters that have less favorable market position.”

Consistently Outperforming the Industry

Berkshire’s track record in commercial lines underwriting has been very positive, and Fitch took note of that fact.

“BRK’s commercial lines’ underwriting results have consistently outperformed the property/casualty industry and most peers and loss reserve experience is historically favorable. Maintaining underwriting profitability with a greatly expanded premium base in a competitive market environment may provide future challenges.”

Tags Insurance