Berkshire Hathaway’s property cat exposure up 50% following “attractive” April 1

Ajit Jain, Vice Chairman of Insurance Operations at Berkshire Hathaway, has suggested that the firm’s property cat exposure is almost 50% more than it was half a year ago, adding, “We have written as much as our capacity will allow us to write,” amid “attractive” April 1 prices.

Jain said, “The last 15 years has been a difficult 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.

“This December 31st, which is a big renewal date for cat reinsurance, we were hoping that we would get a few days in the sun, and we’d be able to deploy capital and be able to write some fairly attractive business.”

He continued, “As it happened, towards the end of December, about the third week of December, I was very optimistic that we would get a chance to put several billion dollars on the books.

“In the last 10 days of December, unfortunately, a lot of capacity came out of the woodwork. Pricing that we were expecting to realise didn’t really come and meet our pricing requirements.

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“As a result, January 1 was a big disappointment. We did not write as much as we were hoping to write.”

However, according to Jain, this served to benefit April 1 renewals, as Berkshire Hathaway had “a lot of powder dry” as prices “zoomed up again.”

Indeed, Jain suggested that April 1 prices started to “look attractive”, and were a lot higher than what they were at January 1.

Jain said, “We have a portfolio that is very heavily exposed to property catastrophe. To put that in perspective, our exposure today is almost 50% more than what it was five or six months ago.

“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.”

Despite having observed the margins as robust, Jain also noted that Berkshire Hathaway has a very “unbalanced portfolio.”

He continued, “What that means is, if there’s a big hurricane in Florida, we will have a very substantial loss.

“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.

“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 say that Berkshire Hathaway has around $300 billion of capital and when they think of property catastrophe risks as an exposure, they are willing to take up around 5% of the capital with property cat.

Jain added that he had called up Warren Buffett a few weeks ago and explained, on property cat exposure, “Warren, we are up to $13bn, it would be nice if we could go up 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.”

Berkshire Hathaway reported a solid Q1 of growth for its P&C reinsurance operations, with premiums written rising by 30% in the period, with the inclusion of TransRe a significant driver of that growth.

On this, Jain commented, “In terms of Alleghany, we treat our operating units independent of each other and as far as Alleghany is concerned, they have a major presence in the reinsurance business under the brand name of Transatlantic Re.

“That company will operate the way it’s been operating in the past, there will be no change in terms of strategy or management and they will keep doing what they do.

“They’ve been very successful and hopefully they’ll keep being successful.”

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