Berkshire’s Montross Says Insurers Hurt by Central Bank Policy
Tad Montross, chief executive officer of Berkshire Hathaway Inc. (BRK/A)’s General Re unit, said monetary policy around the world hurts insurance companies and contributes to the need to raise prices for coverage.
“Central bankers suppressed interest rates on government bonds in an effort to avoid recession and to recapitalize the banking industry,” Montross wrote in a letter posted on Gen Re’s website, as part of the company’s 2011 annual review. “These policies rewarded debtors at the expense of savers, and of course the insurance industry is a saving industry.”
The Federal Reserve is among central banks that have kept interest rates low to stimulate economic growth and boost employment. Insurers including Travelers Cos., Chubb Corp. (CB) and American International Group Inc. (AIG) have been charging customers more after the industry faced lower income from bond portfolios and record catastrophe losses last year.
In past periods of lower returns, “the industry has waited until it needed 15 percent to 25 percent rate increases -- a very disruptive approach that is inconsistent with the stability our clients expect,” Montross wrote.
Gen Re’s net investment income declined to $1.09 billion in 2011 from $1.14 billion a year earlier, according to the annual report. The company’s property business incurred $861 million in losses from natural disasters including earthquakes in Japan and New Zealand. That compares with $339 million a year earlier. Net income fell to $898 million from $937 million.
Gen Re sells reinsurance, or coverage for primary carriers to protect against the costliest claims. Warren Buffett, chairman and CEO of Omaha, Nebraska-based Berkshire, praised Montross in a February letter for avoiding unprofitable business and helping turn Gen Re from a “headache” into a “treasure.”
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