Berkshire Hathaway estimates $1.3 billion CA wildfire loss and reports 66% jump in 2024 UW profits

By David Bull

Feb 22 - (The Insurer) - Berkshire Hathaway said its (re)insurance operations are expected to take a $1.3 billion pre-tax hit from last month’s Southern California wildfires in its first quarter earnings after reporting full year 2024 after-tax underwriting profits that surged by 66 percent to $9.02 billion driven by its Geico unit.

The Warren Buffett-led company reported group-wide operating earnings that increased from $37.35 billion in 2023 to $47.44 billion last year.

In addition to the jump in underwriting profits from its (re)insurance operations, Berkshire Hathaway also generated $13.67 billion of investment income, up from $9.57 billion in 2023.

The 2024 underwriting results included the impact of $1.2 billion of estimated claims from Hurricanes Helene and Milton after tax in the third and fourth quarters.

GEICO DRIVES UNDERWRITING PROFIT

The biggest contributor to 2024 pre-tax underwriting profits that jumped from $6.91 billion to $11.41 billion was US personal lines giant Geico, which as recently as 2022 made a $1.88 billion pre-tax underwriting loss.

Last year, the auto-focused player more than doubled pre-tax underwriting profits from $3.64 billion to $7.81 billion.

Geico’s combined ratio improved from 90.7 percent to 81.5 percent, with a loss and loss adjustment expenses ratio that narrowed from 81.0 percent to 71.8 percent.

Premiums written were up from $39.84 billion to $42.92 billion with premiums earned up from $39.26 billion to $42.25 billion.

Berkshire Hathaway said the increase in premiums primarily reflected rate increases, partially offset by a 0.5 percent decrease in policies-in-force, as average written premiums per auto policy rose 7.8 percent.

The improved loss ratio was attributed to the impact of higher average earned premiums per auto policy and lower claims frequences, partially offset by increases in average claims severities and less favorable development of prior accident years’ claims estimates.

Claims frequencies for property damage declined to the 2 to 3 percent range, and to the 8 to 9 percent range for collision coverage, with bodily injury slightly down.

Average claims severities increased for property damage and collision to the 2 to 5 percent range, with bodily injury coverages up into the 8 to 10 percent range.

Geico took around $360 million of the overall losses from Hurricanes Helene and Milton, while reductions in ultimate loss estimates for prior accident years’ claims were $550 million in 2024, down from $1.5bn in 2023.

UW PROFIT DOWN IN PRIMARY

Berkshire Hathaway Primary Group, which includes the group’s Berkshire Hathaway Specialty Insurance operation as well as the RSUI and CapSpecialty businesses acquired with Alleghany in late 2022, generated pre-tax underwriting earnings that were down $1.37 billion to $855 million.

The combined ratio across the primary business increased from 92.0 percent to 95.4 percent as the loss ratio went up from 65.5 percent to 67.6 percent and expense ratio from 26.5 percent to 27.8 percent.

Premiums written were up 4 percent to $18.83 billion, with premiums earned up 9 percent to $18.73 billion.

Cat losses were around $350 million in 2024 compared to minimal impact in 2023, while there was less of a benefit from reduced estimated ultimate losses for prior accident years’ claims from $537 million to $52 million.

Berkshire Hathaway highlighted a significant increase in estimated ultimate claim liabilities at Guard following a comprehensive review of claims amid deteriorating loss experience.

“The reduction of favorable development of prior years’ liability claims estimates across our other businesses was attributable to unfavorable social inflation trends, including the impacts of jury awards and litigation costs,” it said.

REINSURANCE PROFIT UP

The biggest impact from cat losses was in Berkshire Hathaway Reinsurance Group at $800 million, down from $900 million in 2023.

However, pre-tax underwriting profits in the unit’s P&C operations – which include the P&C businesses of TransRe and Gen Re – increased from $3.51 billion to $3.80 billion.

Premiums written in the P&C operations was down from $22.36 billion to $21.90 billion, with premiums earned up from $21.94 billion to $22.24 billion.

The combined ratio improved from 84.0 percent to 82.9 percent as the loss ratio improved from 57.7 percent to 55.1 percent and the expense ratio from 26.3 percent to 27.8 percent.

Berkshire Hathaway said the loss ratio benefited from a reduction of estimated ultimate liabilities for loss occurring in prior accident years – or reserve releases – of $1.7 billion, up from $1.4 billion in 2023.

National Indemnity Company – also part of the group’s reinsurance underwriting operations – recorded a pre-tax charge in underwriting expenses of $490 million related to a settlement reached over certain non-insurance affiliates that filed for voluntary Chapter 11 bankruptcy in New Jersey.