Tag: Insurance

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Insurance

Reinsurance Losses Swamps Berkshire in Australia

(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.

“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.

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Insurance Minority Stock Positions

Berkshire Gains Big from Life Insurance Merger

(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.

© 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.

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Berkshire Hathaway Specialty Insurance

BHSI Begins Underwriting Marine Insurance in Australia and New Zealand

(BRK.A), (BRK.B)

As Berkshire Hathaway Specialty Insurance Company (BHSI) continues to expand in Australia and New Zealand, the company has announced that it has begun underwriting Marine Insurance in both countries.

The addition of marine coverage further rounds out BHSI’s offerings in Australasia. The company recently launched property, casualty, executive & professional and healthcare lines in Australia, as well as property, casualty and financial lines in New Zealand.

BHSI appointed Dimitry Zilberud as Head of Marine, and Mark Dixon as Marine Manager.

Through its local offices in Auckland, Sydney and Melbourne, BHSI now offers Marine Cargo (Ocean and Inland), Cargo Stock Throughput (STP), Carrier Goods in Transit, Carriers Liability, and Marine Project Cargo coverage.

“We are taking a flexible approach to marine risks, and are pleased to have Dimitry and Mark aboard to provide tailored solutions for customers and brokers navigating these exposures,” said Chris Colahan, President, Australasia Region, BHSI.

Dimitry Zilberud has nearly two decades of marine underwriting experience. Dimitry was most recently the Marine Underwriting Manager, Australasia at HDI-Gerling. Before that, he served as Marine Underwriting Manager, NSW/QLD, for ACE Insurance and was the Business Development Manager at WE COX London UK.

Mark Dixon was most recently Northern Region Marine Underwriting Manager and Senior Marine Underwriter, at HDI-Gerling. Mark has also held various Marine and Distribution positions for both Brokers and Insurers, and a graduate of the Royal Australian Naval College (RANC).

Zilberud and Dixon are both based in BHSI’s office in Sydney.

© 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.

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Insurance

Berkshire Acquires Healthcare Liability Insurer PLICO, Inc.

(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.

© 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.

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Berkshire Hathaway Specialty Insurance Insurance

New Zealand Newest Country for Berkshire Hathaway Specialty Insurance

(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.

© 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.

Categories
Charlie Munger Insurance

Charlie Munger Cools on Reinsurance Business

(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.”

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 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.”

© 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.

Categories
Insurance National indemnity

Berkshire’s Commercial Insurance Arm Grabs Market Share

(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.”

© 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.

Categories
Insurance Special Report

Special Report: Is the Driverless Car a Threat to Auto Insurers?

(BRK.A), (BRK.B)

“Self-driving cars are a real threat to auto insurance business,” Warren Buffett said at the 2014 Berkshire Hathaway annual meeting. It was a comment that didn’t get a lot of attention at the time, but suddenly now everyone seems to be talking about self-driving cars and driverless cars.

With Google testing self-driving cars on public roads, some have touted this as a bellwether for a quickly approaching age of automation that has the driver taking the back seat.

Mercedes, BMW, Audi, and Tesla are just some of the companies that are moving ever closer to self-driving cars with a host of collision avoidance features that respond quicker and more precisely than a human operator can.

As for actually being self-driving, Mercedes-Benz wowed consumers at the Consumer Electronics Show in Las Vegas this past January with its self-driving car prototype, the F 015. Mercedes even created a video of its Blade Runner-esque vehicle driving itself to the trade show.

So, if this world is approaching, what does it mean for Berkshire Hathaway’s GEICO, or other auto insurers? Are they really dinosaurs unaware that a mega-asteroid is approaching to wipe them out?

Not So Fast

Bryan Reimer, a research scientist in the MIT AgeLab and the Associate Director of The New England University Transportation Center, doesn’t think the driver is headed for extinction just yet, or even in the near future.

“These technologies show a lot of promise, however, you are not going to get into a black box and say ‘take me somewhere’ at the consumer level,” notes Professor Reimer. “New technologies will reduce fatalities and accidents, but it won’t eliminate them.”

There’s Still a Need for the Human Operator

“Higher levels of automation in the vehicle will still have humans in a supervisory role,” Reimer adds, noting that the sophisticated auto-pilot in planes still has human operators even with planes separated by thousands of feet of airspace. “The more automation, the more skill and training you need,” professor Reimer explains, pointing out the extensive training that pilots undergo. In the case of cars, “we have no equivalent educational structure in place.”

He also adds that with the close spacing of cars, which can be in fractions of a meter, and the variability of road conditions, it make roadways “a much more dynamic environment and harder to predict.” With the enormous number of cars on the road, often coming from different directions, it makes “the speed of decision-making much tougher.”

Accidents Happen

In addition, any self-driving technology will have to coexist with human drivers for a long time to come. “If everything was automated, it would be much easier,” Reimer adds, noting that we have a tendency to both “over-trust and under-trust technology.”

Google has conceded that during its test phase it has had 14 accidents over a span of six years and 1.9 million miles, but that enviable record didn’t come in the real world conditions of New York City rush hour traffic.

As self-driving cars move into the unpredictable world of everyday traffic, accidents happen. One of those accidents happened on July 1, 2015, when one of Google’s Lexus SUV prototypes was rear-ended in Mountain View, California. The crash sent three Google employees to the hospital with symptoms of whiplash.

Eleven of the fourteen accidents Google has had were rear-end collisions brought about by non-self-driving cars, highlighting the same potential danger for self-driving and non-self-driving vehicles.

A Wide Variety of Insurable Risks

Self-driving cars won’t mean the elimination of hazards. For example, there were 250,000 flood damaged cars from Superstorm Sandy in 2012, and in 2013 there were 699,594 cars reported stolen. Add to the mix everything from trees falling on cars, to vandalism, and there are not going to be many people that want to drive their new car without fire, theft and collision insurance. There certainly will be changes in insurance needs, as changes in the ownership structures mean more car-sharing and ride-sharing scenarios. The popularity of Uber and Lyft has already seen GEICO respond with ride-sharing insurance, which launched this past February, and you can expect more policy innovations as insurers meet new consumer demands.

A Safer World that Still Needs Insurance

We live in a lot safer world than we did a hundred years ago. Commercial buildings have automated sprinkler systems and fire alarms, and homes have smoke detectors and burglar alarms, yet they both still have fires and break-ins, and they still need insurance.

It’s likely that cars and trucks will too.

(This article has been updated since it was published.)

© 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.

Categories
Berkshire Hathaway Specialty Insurance Insurance

Berkshire Hathaway Increases Asia Presence with Minority Stake in IAG

(BRK.A), (BRK.B)




On the heels of Berkshire Hathaway’s recent move into the Australian insurance market, the company has announced that it has purchased a minority stake Australian insurer Insurance Australia Group Limited (IAG).

Berkshire has agreed to pay A$500 million (US$387.8 million) for 3.7% of IAG.

In addition to the ownership stake, Berkshire will receive 20% of IAG’s premiums and in exchange will pay 20% of its claims over the next 10 years, a move that right off the bat will bring Berkshire $1.78 billion of premium annually.

“Our strategic partnership with IAG will help fast-track our entry into this region,” Warren Buffett said. “We have worked with IAG for more than 15 years and over that time we’ve developed a good understanding and respect for their people.”

IAG is the parent company of a general insurance group with operations in Australia, New Zealand, Thailand and Vietnam. The company employs more than 15,000 people.

IAG’s brands include NRMA Insurance, CGU, SGIO, SGIC, Swann, WFI and Lumley Insurance (Australia); NZI, State, AMI and Lumley Insurance (New Zealand); Safety and NZI (Thailand); and AAA Assurance (Vietnam). IAG also has interests in general insurance joint ventures in Malaysia, India and China.

Standard & Poor’s has assigned a ‘Very Strong’ Insurer Financial Strength Rating of ‘AA-’ to IAG’s core operating subsidiaries.

Berkshire Hathaway Specialty Insurance Company (BHSI) recently 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, and four executives from American International Group are also on board.

Non-Dilution Rights

Under a waiver granted by the Australian Securities Exchange, IAG has agreed to give non-dilution rights to Berkshire, granting the company the right to buy shares at the same price as other investors if there is an issuance of securities.

(This article has been updated with new information since it was published.)

© 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.

Categories
Berkshire Hathaway Automotive Insurance

The Hidden Float Within Van Tuyl Group

(BRK.A), (BRK.B)

There’s nothing Warren Buffet loves more than float! The huge float from Berkshire Hathaway’s insurance businesses has helped the company build an equity portfolio of over $100 billion.

Here Comes More Float!

With the completion of Berkshire Hathaway’s $4.1 billion acquisition of the Van Tuyl Group (the largest privately owned auto dealership group in the U.S.), Berkshire gets an added kicker, more float.

The float comes because Van Tuyl Group (rechristened Berkshire Hathaway Automotive) owns Old United Casualty Company, which provides extended warranty services and other automotive protection plans to 1.6 million customers. And Van Tuyl also has a life insurance company, Old United Life Insurance Company.

Both companies are now owned by Berkshire Hathaway and will be split off from Berkshire Hathaway Automotive to become part of Berkshire’s wholly-owned National Indemnity Company.

While Van Tuyl has been based in Texas, Old United Casualty Company and Old United Life Insurance Company are both based in Shawnee Mission, Kansas.

Financial Strength Anybody?

There’s nothing like being owned by Berkshire to add to your financial strength, and A.M. Best Company, which issues insurance ratings, has just affirmed the financial strength ratings of A (Excellent) and the issuer credit ratings of “a+” for Old United Casualty Company and Old United Life Insurance Company. It notes that “the outlook for all ratings is stable.”

A.M. Best also noted that it “believes OUL is well-positioned at its current rating level, positive rating action could occur if potential synergies or expansion of its business profile are realized through its affiliation with Berkshire.”

How Much Float?

With 1.6 million cars protected under the extended warranty plans, and additional customers having life insurance, it’s not unreasonable to assume that the Berkshire’s $4.1 billion acquisition actually came with around a billion in insurance float.

Not a bad kicker!

© 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.