Berkshire Hathaway property cat book “unbalanced” towards Florida: Ajit Jain

Despite writing more business at the April renewals this year, Berkshire Hathaway’s property catastrophe reinsurance book is “very unbalanced” according to Ajit Jain, with the giant insurance and reinsurance balance-sheet still significantly exposed to Florida hurricanes.

Speaking during the annual meeting of the Warren Buffett run conglomerate this weekend, Berkshire Hathaway’s Vice Chairman of Insurance and Reinsurance Ajit Jain said that the company had found the January 2023 renewal season “disappointing” and didn’t grow its property catastrophe book as much as it had hoped then.

Broadly on property catastrophe reinsurance, Ajit Jain told the assembled Berkshire Hathaway shareholders, “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.”

On the January renewal season, Jain said Berkshire Hathaway had been primed to grow, but saw conditions deteriorate as the year drew to a close.

“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.

“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.

“But 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.

“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 seemingly more attractive, on a relative basis at least, at the April 1st 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 a result, Berkshire Hathaway has expanded its property catastrophe reinsurance book, driving up its exposure.

On which Jain explained, “So now 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, six months ago.

“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 expansion has occurred at April 1st renewals, Berkshire Hathaway is still concentrated in the biggest property cat reinsurance market in the world, 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 say 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 company has around $300 billion of capital and they think of property catastrophe risks as an exposure they are willing to take up around 5% of that capital with.

So, a few weeks ago Jain said he had called up Warren Buffett and explained, on property cat exposure, “Warren, I said 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,” Jain commented.

To which Warren Buffett quipped, “I hope he calls me again.”

Suggesting that, should the mid-year June and July reinsurance renewals see property catastrophe reinsurance rates that meet Berkshire Hathaway’s return hurdles and that Jain deems attractive and acceptable, he could be on the phone to Warren Buffett again, perhaps asking to deploy even more capital to take advantage 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.