Net underwriting earnings across Berkshire Hathaway’s insurance and reinsurance operations declined to $750 million in the third quarter of 2024, as the strong performance at GEICO more than offset underwriting losses at both the firm’s primary insurance and reinsurance businesses.
The net underwriting result of Berkshire Hathaway’s re/insurance businesses fell 69% year-on-year from the $2.4 billion seen in Q3 2023, as losses and loss adjustment expenses and underwriting expenses spiked at Berkshire Hathaway Primary Group and Berkshire Hathaway Reinsurance Group.
Pre-tax, underwriting earnings across the re/insurance businesses decreased from $3 billion last year to $1.034 billion this third quarter.
However, for the first nine months of the year, both pre-tax and net underwriting earnings across the re/insurance segments improved year-on-year, to $7.2 billion and $5.6 billion, respectively, compared with $5.8 billion and $4.6 billion, respectively, in 9M 2023.
Although for the nine months ended September 30th, 2024, all three segments made an underwriting profit, the year-on-year growth was driven by GEICO, with declines seen at both the primary insurance and reinsurance business.
Starting with the reinsurance business, which offers excess-of-loss and quota-share reinsurance coverages on property and casualty risks and life and health reinsurance coverages, strong pre-tax underwriting earnings of $1.4 billion in Q3 2023 reversed to an underwriting loss of $310 million in Q3 2024.
For the quarter, underwriting losses of $265 million in retroactive reinsurance, $229 million in periodic payment annuity and $75 million in variable annuity, more than offset gains of $161 million in property and casualty (P&C) and $75 million in life and health (L&H) reinsurance.
It’s a similar story for 9M 2024, although the gains of $2.2 billion in P&C and $279 million in L&H did offset losses of $573 million in retroactive reinsurance and losses of $543 million in periodic payment annuity, with a small gain of $30 million in Variable annuity. All in all, the P&C reinsurance arm delivered an underwriting profit of $1.4 billion in 9M 2024, down from $2.5 billion in 9M 2023.
Although the P&C reinsurance segment did make an underwriting profit in both periods, it fell significantly year-on-year as total losses and expenses rose to $5.3 billion from $4.3 billion for the quarter, with a combined ratio of 97%, up from 74.1% a year earlier. For 9M 2024, total losses and expenses increased from $13.2 billion with a combined ratio of 81.5%, to $14.3 billion with a combined ratio of 86.7%.
P&C reinsurance losses and loss adjustment expenses rose 12.5% to $3.2 billion for the quarter and 3.3% to $9.4 billion in 9M 2024, and the loss ratio for the quarter increased by 9.4 percentage points and by 0.9 percentage points for the nine months.
In 2024, explains the firm, losses from significant catastrophe events, hurricane Helene, were approximately $380 million. In total, Berkshire has estimated losses from Helene of $565 million, so it appears as though the majority of this has been assumed by its P&C reinsurance arm, although GEICO also took a fair share of the losses ($260 million) and the insurance business hit has been estimated at $80 million.
Regarding Milton, and of course this only impacts the firm’s Q4 2024 results, Berkshire has estimated a cost of between $1.3 billion and $1.5 billion.
As well as losses from catastrophes, the P&C reinsurance arm also saw its underwriting expenses rise 51% to more than $2 billion in the quarter and by 19% to $4.9 billion in 9M 2024, driven in part by a “pre-tax charge in underwriting expenses of $490 million in connection with a settlement agreement reached concerning certain non-insurance affiliates that filed voluntary petitions under Chapter 11 of the bankruptcy code in the United States Bankruptcy Court for the District of New Jersey in 2023.”
P&C reinsurance underwriting expenses also included pre-tax foreign currency exchange losses from the remeasurement of certain non-U.S. Dollar denominated liabilities of $171 million in the third quarter and $120 million in the first nine months of 2024, compared to gains of $114 million in the third quarter and losses of $78 million in the first nine months of 2023, explains the company.
In terms of growth, premiums were relatively unchanged in the third quarter and first nine months of 2024 compared with last year, at $5.5 billion and $17.5 billion, respectively.
“Premiums written in the first nine months of 2024 reflected net reductions in property volumes, substantially offset by generally higher rates, new business and increased participations in certain casualty lines,” says Berkshire.
In L&H reinsurance, pre-tax underwriting earnings increased $48 million to $98 million in the third quarter and $45 million to $279 million in the first nine months of 2024, while premiums written fell in the quarter to $1.2 billion but rose in 9M 2024 to $3.7 billion.
Within retroactive reinsurance, which in part drove the reinsurance business underwriting loss, Berkshire attributes the loss to deferred charge amortization, changes in the estimated timing and amounts of future claim payments, and foreign currency exchange gains and losses attributable to non-U.S. Dollar denominated contracts.
Periodic payment annuity business also contributed to the underwriting loss in reinsurance, but as noted by the company, is price and demand-sensitive and the supply of available business is affected by the timing of underlying legal claim settlements. As such, in 2023 and through 9M 2024, Berkshire says that prices for new business were at unacceptable levels and so it decided to write no new business in either period.
“Pre-tax underwriting losses from periodic payment annuity contracts in each period were attributable to the accretion of time- value discounted liabilities, including liabilities for contracts without life contingencies, and to foreign currency exchange gains and losses on non-U.S. Dollar denominated contracts,” explains Berkshire.
Turning to Berkshire Hathaway Primary Group, which consists of several independently managed businesses that provide a variety of primarily commercial insurance solutions, and pre-tax underwriting for the quarter delivered a loss of $689 million compared with a gain of $510 million last year, while the 9M result fell from a profit of $1.1 billion to a profit of just $76 million.
Total losses and expenses within the insurance business rose from $1.2 billion to $1.3 billion for the third quarter with a combined ratio of 114.7%, and from $11.6 billion to $13.8 billion with a combined ratio of 99.5% for 9M 2024.
The loss ratio increased 25.4 percentage points in the third quarter and 6.5 percentage points in the first nine months of 2024 compared to 2023, as estimated ultimate claim liabilities attributable to pre-2024 accident years increased $789 million in the third quarter and $561 million in the first nine months of 2024.
Insurance premiums written increased 1.7% in the quarter to $5.1 billion and by 4.3% in 9M 2024 to $14.5 billion, primarily due to increases at NICO Primary, BH Direct and BHHC, partially offset by lower volumes at GUARD.
Finally, at GEICO, which writes property and casualty policies, primarily private passenger automobile insurance, in all 50 states and the District of Columbia, pre-tax underwriting earnings increased from $1.1 billion to $2 billion in the third quarter, and from $2.3 billion to $5.8 billion in 9M 2024.
Berkshire attributes this strong performance to higher average premiums per auto policy, lower claims frequencies and improved operating efficiencies compared to 2023, partially offset by less favorable development of prior accident years’ claims estimates, a rise in average claims severities and an increase in catastrophe losses.
At GEICO, premiums written rose 7.3% to $11.2 billion in Q3 2024 and by 8.4% in 9M 2024 to $32.4 billion, driven by an increase in average written premiums per auto policy of 10.1%, primarily attributable to rate increases, partially offset by a 2.5% decrease in policies-in-force over the past year.
In terms of investments within the insurance and reinsurance operations, net investment income rose from $2.5 billion in Q3 2023 to $3.7 billion in Q3 2024, and from $6.8 billion in 9M 2023 to $9.6 billion in 9M 2024.
Berkshire Hathaway’s insurance investment float totalled $174 billion at the end of September 2024, up 3% from $169 billion at the end of December 2023.
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