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Underwriting May Help Berkshire’s Insurance Division

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Updated

Claims could subside

The insurance sector (IYF) faced headwinds and losses in 3Q17 due to hurricanes across the US East Coast. Berkshire Hathaway (BRK.B), AIG (AIG), Prudential Financial (PRU), MetLife (MET), and other reinsurers faced headwinds and underwriting losses in 3Q17, which were partially offset by gains from debt and equity investments.

In 4Q17, claims are expected to be lower, as most provisions were booked in 3Q17. However, the sector will remain under stress due to rollovers and windstorms in 4Q17.

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Berkshire posted losses before tax of $963 million in 3Q17, compared with before-tax earnings of $1.4 billion in 3Q16. However, business remained strong, with revenue rising 17.7% to $14.6 billion. The demand for insurance and reinsurance is expected to remain upbeat, with more policies selling in 4Q17 and 2018.

Reinsurance business

Reinsurance businesses’ operating performance has weakened recently, largely due to subdued pricing and losses from natural disasters. Whereas reinsurance companies are attracting business, pricing remains under pressure due to competition. Between 3Q16 and 3Q17, Berkshire’s reinsurance segment’s revenue rose to $2.3 billion from $1.9 billion. However, it posted losses of $1.3 billion in 3Q17, compared with $19 million in 3Q16.

Berkshire’s other reinsurance division, Gen Re, posted losses despite seeing higher revenue. The trend is expected to reverse in 4Q17, with better performance amid slightly lower claims. Berkshire’s GEICO also saw losses, of $504 million before tax, despite revenue growth.

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