Berkshire Scales Back Coverage of Riskiest U.S. Policyholders
Warren Buffett, chief executive officer of Berkshire Hathaway. Photographer: Daniel Acker/Bloomberg
Warren Buffett’s Berkshire Hathaway Inc. scaled back sales of the most unusual and riskiest U.S. insurance policies as prices declined and the company guarded capital for its biggest acquisition.
Berkshire’s premiums from companies insured through excess and surplus policies plummeted 32 percent to $473.9 million in the 12 months ended March 31, SNL Financial said in a report distributed yesterday by e-mail. That was the biggest drop among the top 30 carriers, pushing Omaha, Nebraska-based Berkshire to No. 12 from No. 8 among excess and surplus insurance writers.
“Their premium decline is quite a bit more than other insurance companies,” Andrew Schukman, the SNL analyst who wrote the report, said in an interview. “That’s probably an indicator that they’re pulling back a bit.”
Insurers are facing price declines as they compete for business in a contracting market. Buffett, 79, Berkshire’s chief executive officer, has reduced his firm’s reliance on insurance over the last decade by acquiring energy and freight businesses. Last year, he curbed Berkshire’s coverage of natural-disaster risks, and in February he spent $27 billion buying railroad Burlington Northern Santa Fe Corp., his biggest acquisition.
Rates in the excess and surplus market, which includes unusual policies like “fire insurance to a fireworks factory,” have slipped for at least three years, said Schukman. American International Group Inc., the bailed-out insurer, posted an 11 percent premium decline and remained at the top of the rankings, according to SNL. Industrywide, premiums fell 5.5 percent to about $23 billion.
Berkshire’s Move
“I can’t say definitively if Berkshire is moving out or if they’re doing a temporary pullback,” Schukman said. “It could be that they’re not getting the rates that they want and they’re willing to pull back further than other companies are.”
Buffett didn’t respond a request for comment sent in an e- mail to an assistant.
QBE Insurance Group Ltd., based in Sydney, was the only insurer in the top 10 to post a premium increase, more than doubling sales to $551 million. Allianz SE, Germany’s biggest insurer, slipped to 21st from 14th after posting the second- biggest premium decline, a 23 percent slide.
Sales in the broader U.S. property and casualty market dropped the most in five decades last year. Policy sales fell 3.7 percent to $419 billion, a third straight annual decline, according to an April statement from the Property Casualty Insurers Association of America.
Rates Decline
U.S. commercial insurance rates have declined in every quarter from 2004 through the end of March, according to a survey by the Council for Insurance Agents & Brokers, a Washington-based trade group.
Price declines will probably continue for the “foreseeable future,” Christa Davies, chief financial officer of the world’s biggest insurance broker, Aon Corp., said in a July 12 conference call. Berkshire Vice Chairman Charlie Munger said in May that rates may keep falling and that his company was more “tough minded” about profitability than some rivals.
“It’s so easy to under-price and under-reserve,” Munger said at the annual meeting of Wesco Financial Corp., where he is chairman. “Berkshire is different.”
Berkshire, which Buffett assembled in four decades of takeovers, sells car insurance through its Geico Corp. unit and less traditional coverage through General Re and other reinsurance divisions overseen by Ajit Jain. Berkshire sold coverage that would have required a $30 million payout if France had won the World Cup, Buffett told CNBC in March. France was eliminated from the soccer tournament last month after going winless in three games.
Excess and surplus coverage is written by so-called non- admitted insurers that are subject to less regulation on rates than providers of traditional coverage.
To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.
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