Berkshire Hathaway, the Warren Buffett-run holding company and conglomerate, had a particularly good first-quarter of 2022 in its property and casualty reinsurance business, with earnings up significantly year-on-year.
In fact, the profits reported for Q1 2022 more than offset some of the loss-making other areas of Berkshire Hathaway’s insurance and reinsurance group ventures and represent the best P&C reinsurance result for the quarter in at least five years.
For the first-quarter, Berkshire Hathaway’s P&C reinsurance division, which includes General Re (GenRe) and National Indemnity (NICO), delivered pre-tax underwriting profits of $405 million, up significantly from Q1 2021’s $166 million.
Premiums earned were relatively flat and although Berkshire’s P&C reinsurance business is likely earning more through firmer pricing, the real drivers of improved profitability were lower losses and a fall in underwriting expenses.
Warren Buffett’s re/insurance businesess demonstrated the importance of their deep industry diversification in the first-quarter, after auto insurer unit Geico, life and health reinsurance, retroactive reinsurance and periodic payment annuities all delivered underwriting losses for the period.
Overall, Berkshire Hathaway’s insurance and reinsurance underwriting income for Q1 was just $47 million, well down on the prior year quarter’s $764 million of operating earnings.
Even Berkshire Hathaway’s Primary Group, which includes its Specialty Insurance (BHSI) division, did not perform as well year-on-year, with pre-tax underwriting earnings falling to $92 million, from $206 million.
Which makes the positive performance of P&C reinsurance even more important, as it was the one re/insurance division that really performed, with its $405 million of underwriting earnings.
In full-year 2021 the P&C reinsurance unit only delivered a pre-tax underwriting profit of $667 million, so this Q1 2022 result is a particularly strong start to the year.
The loss and loss adjustment expense (LAE) ratio for the P&C reinsurance business was 67.9%, better than the prior years 70.9%. But expenses came in four points better as well, so delivering a combined ratio of 88.1% which is one of the best in some years for this P&C operation, again much better than the prior years 95.1%
That enabled Berkshire Hathaway to retain much more of its P&C reinsurance underwriting revenues in Q1, driving the dramatically improved P&C reinsurance underwriting profit for the period.
Berkshire’s P&C reinsurance business suffered $315 million of catastrophe losses during the period, but this was offset to a degree by favourable prior year reserve development of $137 million.
The Australian flooding was the major catastrophe loss for Berkshire Hathaway in Q1 2022, where as last year it was winter storm Uri in the United States.
While the life and health reinsurance division reported an underwriting loss, of -$12 million, this was much better than Q1 2021 when Covid pandemic mortality related losses drove a far bigger dent in earnings.
The GEICO auto unit was really a dent to performance for Warren Buffett’s re/insurance underwriting businesses, as its losses rose $2.1 billion, or 17%, due to an increase in claims frequencies and severities.
That may read-across to other auto insurers, as well as to reinsurers’ that underwrite automotive books.
Investment income from the Berkshire Hathaway insurance and reinsurance businesses came out at $1.17 billion for Q1 2022, down slightly on the prior years $1.208 billion.
Re/insurance related investment float, or firepower, rose by one billion to reach $148 billion at the end of March 2022.