Berkshire takes $55.5bn hit from virus and posts loss in primary business

Berkshire Hathaway’s enormous stockholdings left it highly exposed to the market collapse induced by the Covid-19 pandemic, so it has reported a massive $55.5bn investment loss in the first quarter of this year that led to a total group net loss of $49.7bn. Overall, the group’s reinsurance and insurance businesses posted a post-tax profit of $363m – but this was driven solely by GEICO, the group’s motor insurance operation. The reinsurance and primary insurance operations – which include Berkshire Hathaway Specialty Insurance (BHSI) – posted losses for the quarter as they began to suffer virus-related claims. Berkshire Hathaway did not break down the virus-related claims in detail. But, as with other US insurers, it is clearly preparing for a battle over business interruption (BI) claims with lawyers and potentially legislators as they continue to seeks ways of accessing BI policies “Our underwriting results for the first quarter of 2020 were negatively affected by estimated losses and costs associated with the Covid-19 pandemic, including estimated provisions for claims and uncollectible premiums and incremental operating costs to maintain customer service levels,” stated the group. “The potential effects of the pandemic may be further affected by judicial rulings and regulatory and legislative actions pertaining to insurance coverage and claims that we cannot reasonably estimate at this time. We also anticipate our underwriting results in 2020 will be affected from lower premiums for certain business, attributable to premium credits granted to policyholders and when premiums are a function of the insured’s payroll,” added Berkshire Hathaway. Premiums written and earned in the first quarter of 2020 by the group’s primary insurance operations including BHSI rose 10.1%, compared to 2019. The group said BHSI contributed to the increase in premiums while other group companies such as NICO saw decreases. It said premiums from workers compensation business declined in the first quarter of 2020, reflecting the effects of increased price competition in the market, lower insured payroll levels from the effects of the Covid-19 pandemic, and its sale of Applied Underwriters in October 2019. BH Primary made a pre-tax underwriting loss of $33m in the first quarter of 2020. This included claim cost estimates and allowances for credit losses attributable to the pandemic, partly offset by lower other underwriting expenses. “BH Primary insurers write significant levels of commercial and professional liability and workers compensation insurance, and the related claim costs may be subject to higher severity and longer claim tails. Accordingly, we could experience significant increases in claims liabilities in the future, attributable to higher-than-expected claim settlements, adverse litigation outcomes or judicial rulings, regulatory actions and other factors not currently anticipated,” stated the group. The reinsurance businesses also had a tough quarter. Premiums rose across the book but all areas of property and casualty reinsurance, life and health reinsurance, retroactive reinsurance and periodic payment annuities suffered underwriting losses in the first quarter. The property and casualty (P&C) reinsurance business grew its premiums written by 14.5% in the quarter, but increased losses and expenses both contributed to a $162m underwriting loss for the P&C reinsurance unit. The P&C reinsurance unit suffered losses of $2.1bn in the first quarter of this year, compared with $1.8bn in the prior-year period. Covid-19-related reinsurance claims from the first quarter were valued at $230m.

Berkshire takes $55.5bn hit from virus and posts loss in primary business

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