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Why Berkshire Hathaway Saw a Subdued 2Q17

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Part 3
Why Berkshire Hathaway Saw a Subdued 2Q17 PART 3 OF 9

Why Berkshire’s Insurance Profit Fell

Underwriting losses

Berkshire Hathaway (BRK.B) saw its business expand in its insurance division on a YoY basis with revenues growing by 13% to $13.7 billion. However, earnings before taxes fell 27.9% to $1.26 billion mainly due to underwriting losses largely in the reinsurance business.

Why Berkshire&#8217;s Insurance Profit Fell

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GEICO

Berkshire’s GEICO division saw a 16.7% rise in premiums written in 2Q17, reaching $7.6 billion due to growth in auto policies. This was partially offset by higher losses and underwriting expenses totaling up to $7.13 billion compared to $6.10 billion in the prior year.

Insurance peers (XLF) including American International Group (AIG), Prudential (PRU), and Allstate (ALL) have all been targeting a mix of life and P&C businesses.

Reinsurance losses continue

Berkshire Hathaway’s reinsurance business has witnessed a weaker operating performance over the past couple of years on declining premiums mainly due to strong competition in the space. However, in 2017, the company witnessed rising underwriting losses resulting in an overall weaker performance of its insurance business. The sub division’s premium earned increased to $1.79 billion compared to $1.65 billion in the prior year. The rise was helped by higher premiums in the property and casualty, life, and annuity reinsurance businesses.

The reinsurance business posted underwriting and earnings before tax losses on higher claims. The subdivision saw pre-tax underwriting losses of $400 million in 2Q17 compared to underwriting gains of $184 million in the prior year period. The bulk of the losses came from retroactive insurance and the remaining came from the life and annuity business. Underwriting gains for property and casualty also declined to $52 million from $249 million in the prior year.

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