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Insurance Claims Dent Berkshire’s Profitability in 2017

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Dec. 1 2017, Updated 7:35 a.m. ET

Higher claims

Berkshire Hathaway (BRK.B) reported losses before tax of $963 million in 3Q17 compared to earnings before taxes of $1.4 billion in the corresponding period last year. The division’s revenues have risen 17.7% in 3Q17 to $14.6 billion, reflecting demand for insurance and reinsurance products. However, claims have remained high in the recent quarters due to natural disasters.

Berkshire’s reinsurance business remains under pressure with the highest claims and losses before taxes amid stiff premium competition. The reinsurance business posted revenues of $2.3 billion in 3Q17 compared to $1.9 billion in the prior-year period. However, it posted losses of $1.3 billion compared to a loss of $19 million in the prior year.

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Berkshire’s GEICO also managed growth in revenues to $7.5 billion from $6.5 billion in 3Q16. The division saw losses before taxes of $504 million in 3Q17 mainly due to significant losses from Hurricane Harvey and Hurricane Irma. Other life and P&C (property and casualty) providers (IYF) including AIG (AIG), Allstate (ALL), and Prudential (PRU) are also facing losses from Harvey and Irma.

General Re

General Re, another Berkshire Hathaway division, also faced losses before taxes in 3Q17 in spite of higher underwriting amid growing insurance demand in the industry. Overall, the reinsurance space is facing margin as well as a claims dent in its overall profitability. The trend was getting stabilized in 2Q17 on the pricing front. However, higher claims have pushed reinsurers across the sector into the red amid hurricanes. The trend could continue through at least 4Q17 given continued claims in October 2017.

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