Fitch: Berkshire Hathaway’s Commercial Insurance Success Threatens Smaller Rivals

June 19, 2015

Berkshire Hathaway’s expansion into the U.S. commercial lines market in recent years has been immensely successful for the company, giving it the ability to crowd out smaller rivals, Fitch Ratings said in a new report.

According to Fitch, the insurer has “quietly” grown to the point where it is the 10th largest commercial lines insurer in the U.S., based on 2014 direct premium volume.

“Diverse commercial business segments and substantial capital resources position [Berkshire Hathaway] for further market share growth that could marginalize smaller commercial lines underwriters that have less favorable market position,” Fitch said.

As Fitch notes, Berkshire Hathaway is already known as one of the biggest property/casualty insurers in the U.S., with operating segments in reinsurance (written through National Indemnity Co. and General Reinsurance Corp.) and also private passenger auto insurance written through GEICO.

Much of the expansion has taken place over the last five years, Fitch said, with commercial lines direct premium growing by 125 percent to $5.6 billion, both through organic growth and targeted acquisitions.

Fitch credits workers compensation insurance with being a key driver of this growth, which made Berkshire Hathaway the seventh-largest U.S. writer in this area based on 2014 direct written premiums. Berkshire Hathaway first jumped into workers compensation in 2004, in California, after it established a relationship with managing general agent American All-Risk Insurance Services (AARIS), which it eventually acquired. Between 2009 and 2014, workers compensation direct written premium has soared to $2.1 billion, a nearly fivefold increase, according to the report.

Specific commercial lines growth has occurred through a number of Berkshire platforms, Fitch said, with Berkshire Hathaway Homestate Cos. leading the pack. This division reorganized from a regional entity that offered a number of small-business coverages to a national entity that wrote more than $1 billion in direct premium in 2014, Fitch noted.

Fitch added it expects further Berkshire Hathaway market domination and growth to continue in the commercial lines space, particularly through the 2013 launch of Berkshire Hathaway Specialty Insurance. Already, BHSI has underwriting teams in multiple segments, focuses on larger accounts and offers higher limits than comparable underwriting units, the report found. As of now, BHSI has eight offices in the U.S. and five international locations, with targeted areas including commercial property, umbrella and excess liability, professional liability, fiduciary liability and E&S coverage.

BHSI, Fitch said, will allow for more commercial lines expansion in areas including excess and surplus lines, commercial property, and professional liability insurance, thanks to the added underwriting capacity it provides.

Source: Fitch Ratings