Buffett's Berkshire, XL Among Reinsurers With Drop in Surplus Last Quarter
Warren Buffett’s Berkshire Hathaway Inc. and XL Group Plc are among U.S. reinsurers reporting a decline in policyholders’ surplus after four straight quarterly gains.
The combined surplus of 19 reinsurers declined 1.6 percent in the three months ended June 30 to $99.7 billion from $101.3 billion in the first quarter, the Reinsurance Association of America said today in a report.
“Surplus hasn’t changed very much from quarter to quarter,” Scott Williamson, assistant vice president of financial analysis of Washington-based RAA, said today in an interview. “There were changes in net realized capital losses that impacted some companies.”
Reinsurers provide coverage to primary carriers, protecting them from larger claims. National Indemnity Co., owned by Omaha, Nebraska-based Berkshire, reported a 1 percent surplus drop to about $61 billion. The surplus, a measure of assets minus liabilities, declined 5.3 percent to $2.12 billion at Bermuda- based XL Group’s U.S. business.
Berkshire’s Class A shares slipped 1 percent to $116,858 at 4 p.m. in New York Stock Exchange composite trading and have climbed about 18 percent this year. XL fell 2.7 percent to $17.68.
BP Oil Rig
Swiss Reinsurance Co.’s surplus rose 0.9 percent in the second quarter while Munich Re reported a 1 percent increase. The world’s two largest reinsurers posted profits in the same period amid gains from investments.
“Catastrophes were not significant enough to meaningfully impact the reinsurers,” said Jay Gelb, a New York-based analyst at Barclays Plc, in a note on Aug. 17. “Deepwater Horizon oil rig property losses appear modest for individual insurers.”
The aftermath of the biggest oil spill in U.S. history, caused by the April 20 explosion on a rig leased by BP Plc in the Gulf of Mexico, will be the biggest man-made insurance loss since the Sept. 11 terrorist attacks in New York, according to data from Swiss Re. BP didn’t buy insurance and will cover the majority of the expenses linked to the cleanup.
“Some reinsurers classified that as a catastrophic event,” said Michael Paisan, a New York-based analyst at Stifel Nicolaus & Co. “Others did not classify it as a catastrophe in that it was a man-made event.”
‘Supply and Demand’
Policy sales for the group of 19 reinsurers declined 4.2 percent to $12.3 billion in the first half of the year, down from $12.8 billion in the same period in 2009, the RAA said.
Property reinsurance rates have declined as carriers face increased competition, Willis Group Holdings Ltd. reported on June 30. The prices for the U.S. declined as much as 10 percent based on July 1 renewals, according to the Dublin-based insurance broker.
“There’s just too much capacity in the marketplace,” Paisan said. “You have a disconnect between the supply and demand. There’s going to be pressure on pricing as everybody’s fighting for a smaller piece of the pie.”
To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net.
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