Declining Claims Could Help Berkshire Insurance in Second Quarter

GEICO to lead

Berkshire Hathaway’s (BRK.B) Insurance segment has seen a volatile performance in the recent quarters owing to reinsurance losses and rising claims, partially offset by rising revenues for GEICO and Primary Group, as well as growth in investment income. In the second quarter, GEICO could see growth on automobile sales and renewals. The company’s Reinsurance performance might stabilize, as the pricing decline has stalled.

A major boost could come from the fact that claims on account of natural calamities have been lower in comparison to the fourth quarter of 2017 and the first quarter.

Declining Claims Could Help Berkshire Insurance in Second Quarter

In the first quarter, Berkshire’s Insurance segment posted revenues of $14.6 billion, down from $22.9 billion on losses in the Reinsurance segment. GEICO and Berkshire Hathaway’s Primary Group managed growth on a YoY basis.

The insurance sector (XLF) saw a sequential decline in claims in the first quarter. Claims could continue to fall in the second quarter. AIG (AIG), Chubb (CB), and Prudential (PRU) have seen lower claims in 2018.

Rising margins

In the first quarter, Berkshire’s Insurance segment saw operating profits rise to $1.7 billion from $750 million in the prior year. The trend could improve in the second quarter owing to lower claims and reinsurance losses. Insurance penetration could increase in the US amid the higher threat of natural calamities, which could help Berkshire command better pricing and margins.

The Reinsurance segment’s performance will likely be a key driver for Berkshire’s Insurance growth in the current and upcoming quarters. The weaker performance was attributed to subdued pricing and higher claims in the recent quarters.