A drag on profitability
Berkshire Hathaway (BRK.B) Insurance segment is expected to see a YoY (year-over-year) rise in revenues due to the sale of policies in automotive, property, and reinsurance offerings. However, the division is expected to see a sequential and YoY decline in earnings before taxes due to higher claims caused by Hurricanes Harvey and Irma.
The major impact will likely be seen in reinsurance underwriting income, which could turn negative for 3Q17 due to higher claims. The insurance giant could also see higher claims for auto insurance due to diversified exposure.
Berkshire’s performance has been strong in the sector, if viewed from a perspective of gaining businesses. However, over the past couple of quarters, we’ve seen a decline in profitability due to rising claims. If this trend continues, the company and the overall sector might have to take another look at the pricing of various policies.
Notably, the premiums garnered through Berkshire’s insurance business are deployed in various companies by Warren Buffett and other asset managers in the form of equity investments.
Berkshire’s Insurance division has managed revenues above $13.5 billion over the past three quarters, with a growth of 13.4% in 2Q17. However, before tax, earnings fell 27.9% in 2Q17, due to losses in the reinsurance business on natural disasters, partially offset by commercial and retail insurance offerings.
Berkshire’s GEICO is expected to see higher revenues with a decline in profitability for 3Q17. In its life and P&C offerings (IYF), Berkshire competes with AIG (AIG), Prudential Financial (PRU), and Chubb (CB).
Berkshire Hathaway’s reinsurance business premiums rose in 2Q17, but it saw underwriting losses compared to gains the previous year. The trend of rising premiums looks healthy as the division was facing competition on the top-line front. The trend is expected to gain momentum, with more business for the company in coming quarters. At the same time, claims could show big rises in 3Q17 due to recent hurricanes.