German floods hit Berkshire results but BHSI continues growth path

Berkshire Hathaway reported a chunky underwriting loss in the third quarter, mainly incurred by its reinsurance businesses and driven by catastrophe losses such as the European floods that ravaged Germany and neighbouring countries. The group said the results were also negatively impacted by estimated losses and costs caused by the Covid-19 pandemic, including estimated provisions for claims and uncollectible premiums, and incremental operating costs to maintain customer service levels. The primary insurance business, however, reported decent growth partly driven by another good performance from the fast-growing Berkshire Hathaway Specialty Insurance (BHSI) operation. It reported growth in professional liability, casualty and property lines of business, in what remains a tough market for corporate risk and insurance managers in key lines. BHSI is growing strongly in Germany from its Cologne base and, despite the huge flood losses in the third quarter, sees great potential in Europe’s biggest economy. The latest addition to its Cologne team was Natali Bagaric, who joined from Chubb to lead its expansion into the property line for middle-market (Mittelstand) enterprises across Germany. The overall group insurance underwriting operations produced after-tax losses of $784m in the third quarter of this year, against a loss of $213m for the same period last year. The group reported insurance profits of $356m in the first nine months of 2021, compared with a profit of $956m for the first nine months of last year. After-tax incurred losses from significant catastrophe events were approximately $1.7bn in the third quarter and $2.2bn in the first nine months of 2021, which were partly offset by reductions in incurred losses for prior accident years’ loss events, said the group. “The timing and magnitude of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to our reinsurance businesses. Generally, we consider incurred losses in excess of $100m from a current-year catastrophic event to be significant. The significant catastrophe events in 2021 included Hurricane Ida and floods in Europe in the third quarter, as well as winter storm Uri in the first quarter,” explained Berkshire Hathaway. The group has been hit by the Covid-19 pandemic and warned investors that decisions in the courts – presumably over business interruption claims caused by forced business closures – and reduced business activity could have a significant impact in future periods. “Underwriting results for certain of our commercial insurance and reinsurance businesses were negatively affected in 2021 and 2020 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. The effects of the pandemic in future periods may be affected by judicial rulings and regulatory and legislative actions pertaining to insurance coverage and claims, and by its effects on general economic activity, which we cannot reasonably estimate at this time,” said the group. The continued growth in BHSI’s footprint and firm overall commercial and corporate insurance market is clearly helping to bolster volumes despite these pressures, reported the group. Premiums written by the Berkshire Hathaway primary operations increased $503m (16.7%) in the third quarter and $1.8bn (23.0%) in the first nine months of 2021, compared to 2020. The group said this was “primarily attributable” to a 42% year-to-date increase from BHSI in professional liability, casualty and property lines of business. The Berkshire Hathaway primary operations – including BHSI – did benefit from a loss ratio improvement of 3.8 percentage points in the third quarter and 3.4 percentage points in the first nine months of 2021, versus 2020. This was driven by increased reductions in estimated ultimate liabilities for prior years’ loss events of $420m in 2021, compared to $190m in 2020. The group did warn, however, that an uncertain judicial environment in the liability area meant caution has to be taken about future results. “BHSI primary insurers also write significant levels of commercial and professional liability and workers’ compensation business, and the related claim costs may be subject to high severity and long 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 and other factors not currently anticipated,” said the group.

German floods hit Berkshire results but BHSI continues growth path

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