Tag: Insurance

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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.

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Acquisitions Berkshire Hathaway Reinsurance Group Berkshire Hathaway Specialty Insurance

Buffett Quells Talk of Big Insurance Takeovers

(BRK.A), (BRK.B)

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.

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Berkshire Hathaway Specialty Insurance

Berkshire’s AirCare Travel Insurance is Money in the Bank

(BRK.A), (BRK.B)

Missed your connecting flight? Sitting on the tarmac unable to take off? Berkshire Hathaway has made a big bet that you’re your travel delays, delayed and lost luggage, and missed connections are money in the bank—yours and theirs.

This past January Berkshire Hathaway Specialty Insurance acquired the assets of the Noel Group’s MyAssist and Insure America in order to move into an area of travel insurance that is different than traditional trip cancellation policies. This insurance focusses on the little inconveniences that bedevil air travel.

Money in the Bank

The innovative AirCare Travel Insurance product is sold for only $25 a domestic flight, and its key feature is real-time monitoring of your flight status and direct deposits into your bank account.

Berkshire Hathaway Specialty Insurance promises that their AirCare Travel Insurance will “start rebooking a missed connection automatically. Help replace lost luggage quickly. Even save you a seat in the VIP Lounge.”

All that sounds nice, but it’s the money in the bank that is the big hook. No paperwork, no submitting receipts or claim forms, the real-time monitoring means that while you are working on rebooking your flight a deposit of $50 is hitting your bank account if the departing or connecting flight takes place two or more hours after the originally scheduled flight. The money only goes up from there. You receive $500 for flight delay that causes a missed connection, and $1,000 if you sit on the tarmac for more than two hours.

Lost and delayed baggage pay-outs include $500 for misplaced luggage that is delayed by more than 12 hours, and $1,000 for bags that are lost or stolen.

In addition to direct EFT deposits, travelers can get the more traditional check in the mail, and another innovation enables travelers to get their funds deposited into their PayPal account in lieu of a bank account.

Weather or Not to Buy Insurance

The convenience of AirCare Travel Insurance is that it can be purchased through a mobile app and charged to a credit card even as you sit in the airport. Purchase rules only require that it only be an hour or more before your scheduled departure and that there not be an active weather warning in effect. This means that as long as the airport is open you can place your bet on your flight being delayed.

Ramping Up Big Time

The new Berkshire Hathaway Travel Protection unit is headed by Noel Group’s John Noel, the man who became a leader in modern travel insurance when in 1985 he launched Travel Guard insurance from his basement home office.

Currently the company has 150 employees at its headquarters in Stevens Point, Wisconsin, and they are looking to hire 2,000 employees in anticipation of strong demand for the new insurance product.

How big is the Market?

The market is huge. John Noel points to the 660 million domestic air travel segments a year, and the 30-percent of all travelers that currently purchase a travel insurance policy, as an indicator of the potential market. That market will even grow larger as an anticipated expansion covering international travel is added on. It’s a total market that currently has no competition, is not covered by travel riders provided by homeowner’s or auto policies, and even if others enter it Berkshire Hathaway Specialty Insurance has positioned itself to be the market leader.

Sounds like money in the bank.

© 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.

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Berkshire Hathaway Reinsurance Group

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

(BRK.A), (BRK.B)

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.