Berkshire Hathaway saw its insurance earnings improve dramatically overall, after taking a hit the previous year when COVID-struck the world.
The Warren Buffet-led conglomerate produced $764 million in insurance underwriting income in the 2021 first quarter, up from $363 million in the 2020 first quarter.
Overall, the company produced more than $11.7 billion in earnings for the 2020 first quarter, or $7,638 per Class A share, versus a $49.7 billion net loss in the 2020 first quarter, or negative $30,653 per class A share – at the early stages of the pandemic.
Berkshire Hathaway said it generated insurance underwriting earnings from primary insurance, and underwriting losses from “reinsurance assumed.” Underwriting results reflected the effects of the pandemic, the company said, including premium reductions from its GEICO Giveback program created to return excess premium during the pandemic lockdowns, and reduced claims frequency for private passenger auto coverage overall.
At the same time, insurance investment income took a hit. That number came in at $1.2 billion in Q1, compared to nearly $1.4 billion the year before. That’s an almost 13 percent decline, driven mostly to lower interest income earned on cash and short-term investment in U.S. treasury bills, Berkshire Hathaway said.
GEICO booked more than $10 billion in premiums earned in Q1, versus just under $9.7 billion in the 2020 first quarter. Premiums earned surpassed $8.9 billion, down from $9.1 billion the previous year. The division’s pre-tax underwriting earnings surpassed $1 billion, up from $984 million in Q1 2020.
GEICO’s ratio of losses and loss adjustment expenses to earnings in Q1 was 72.4, down 1.9 percentage points year-over-year, due to lower claims frequencies, but this was partially offset by bigger claims severities and the impact of lower premiums earned.
GEICO was enough of a standout that Buffett saw fit to recommend the company in his annual letter to shareholders.
Berkshire Hathaway Primary Group
The company’s Berkshire Hathaway Primary Group, which provides a variety of commercial insurance options under a number of sub-brands, saw its premiums written during the 2021 first quarter jump to $2.9 billion. That’s up from more than $2.4 billion in the previous year.
Premiums earned for the Group surpassed $2.6 billion, compared to more than $2.3 billion in the 2020 first quarter.
Berkshire Hathaway said the premium gains came primarily from its BH Specialty and MedPro Group brands. BH Specialty saw gains in its casualty business and MedPro Group experienced increases in a number of product categories. At the same time, Berkshire Hathaway Homestate Companies (BHHC), saw premiums written decline 8 percent in Q1. This was due to lower workers compensation volumes driven by pandemic-related lower insured payroll levels, and also price competition, Berkshire Hathaway said.
Berkshire Hathaway Primary’s loss ratio in Q1 was 69.7, down 6.7 percentage points over the previous year, due to net reductions in estimated liabilities for previous years’ loss events. The division’s expense ratio declined 2.5 percentage points due to changes in the business mix and the impact of pandemic-related allowances for expected credit losses in the 2020 first quarter.
Berkshire Hathaway Reinsurance Group
The Berkshire Hathaway Reinsurance Group (BHRG), which offers a number of reinsurance coverages on P/C risks for insurers and reinsurers globally, saw its P/C reinsurance premiums earned grow to nearly $3.4 billion, up from $2.7 billion the year before. The division’s pretax underwriting earnings were $166 million, versus a $162 million underwriting loss in the 2020 first quarter.
P/C reinsurance premiums written were nearly $4.4 billion, up from $4 billion last year.
Life/health saw premium declines, however (1.3 billion premiums earned in Q1 2021, versus $1.35 billion in Q1 2020), producing a $172 million pre-tax underwriting loss for the quarter. The line reported $5 million in pretax underwriting earnings last year.
Retroactive reinsurance earned no premiums during Q1, with no significant retroactive reinsurance contracts. That compared to just $34 million in premiums earned a year ago. The line produced a $242 million underwriting loss in Q1, versus a $42 million underwriting loss the year before.
Source: Berkshire Hathaway Group