Despite composing more business at the April renewals this year, Berkshire Hathaway’s property disaster reinsurance book is “very unbalanced” according to Ajit Jain, with the huge insurance coverage and reinsurance balance-sheet still substantially exposed to Florida typhoons.
Broadly on property disaster reinsurance, Ajit Jain informed the put together Berkshire Hathaway investors, “The last 15 years has actually been a hard time.
“Prices have not been attractive and even though we have had some presence in the property cat business in the last 15 years, it really has been minimal.”
On the January renewal season, Jain said Berkshire Hathaway had actually been primed to grow, however saw conditions weaken as the year waned.
“This December 31st, which is a huge renewal date for cat reinsurance, we were hoping that we would get a couple of days in the sun, and we’d have the ability to release capital and have the ability to compose some relatively appealing business.
“As it took place, towards completion of December, about the 3rd week of December, I was really positive that we would get an opportunity to put a number of billion dollars on the books.
“But in the last 10 days of December, sadly, a great deal of capability came out of the woodwork. Pricing that we were anticipating to understand didn’t actually come and satisfy our rates requirements.
“As a result of which, January 1 was a big disappointment. We did not write as much as we were hoping to write,” Ajit Jain explained.
Conditions were relatively more appealing, on a relative basis a minimum of, at the April first renewals.
Jain said, “Fast-forward to April 1, which is another big renewal date, we had a lot of powder dry, and we were lucky that we kept that powder dry, because at April 1 suddenly prices zoomed up again, a lot higher than what they were at January 1 and started to look attractive to us.”
As an outcome, Berkshire Hathaway has actually broadened its property disaster reinsurance book, increasing its direct exposure.
On which Jain explained, “So now we have a portfolio that is really greatly exposed to property disaster. To put that in point of view, our direct exposure today is almost 50% more than what it was 5, 6 months back.
“So, you know, I think we have written as much as our capacity will allow us to write. We are very happy with what we’ve written, the margins have been healthy.”
But, while the growth has actually happened at April first renewals, Berkshire Hathaway is still focused in the most significant property cat reinsurance market on the planet, Florida.
“While the margins have been healthy, we have a very unbalanced portfolio. What that means is, if there’s a big hurricane in Florida, we will have a very substantial loss,” Jain explained.
“As opposed to that if we have a very big loss anywhere other than Florida, relative to our competition we will have a much smaller loss.”
He continued to state that, “Net-net, I’m very happy with the portfolio. It is a lot better than what it’s been in the past. I don’t know how long it will last and of course, if the hurricane happens in Florida we could lose, across all the units, we could lose as much as $15 billion and if there isn’t a loss we will make several billion dollars in profit.”
Jain went on to state that, at Berkshire Hathaway the business has around $300 billion of capital and they consider property disaster dangers as a direct exposure they want to use up around 5% of that capital with.
So, a couple of weeks ago Jain said he had actually contacted Warren Buffett and explained, on property cat direct exposure, “Warren, I said we depend on $13bn, it would be great if we might increase to $15bn. That’s a good round number.
“That was less than a 30 second phone call. I think Warren said yes without even listening to what the numbers were,” Jain commented.
To which Warren Buffett quipped, “I hope he calls me again.”
Suggesting that, need to the mid-year June and July reinsurance renewals see property disaster reinsurance rates that satisfy Berkshire Hathaway’s return difficulties which Jain considers appealing and appropriate, he might be on the phone to Warren Buffett once again, maybe asking to release a lot more capital to make the most of market conditions.
Berkshire Hathaway reported strong premium growth in the first-quarter of 2023, with the inclusion of Alleghany’s TransRe a key driver of that, our sister publication Reinsurance News reported on Saturday.
