Berkshire’s property cat bet pays off for Buffett so far in 2023

The bet that Warren Buffett’s reinsurance business at Berkshire Hathaway has made on writing more property catastrophe risks is paying off so far in 2023, with P&C reinsurance earnings soaring, as its premiums also rose aided by the TransRe acquisition.

In the first-half the property and casualty reinsurance business of Warren Buffett’s Berkshire Hathaway wrote an additional $1 billion of written premium, helped by the TransRe addition.

In the third-quarter that trend has continued, with the Berkshire P&C reinsurance business reporting a 19% increase in premiums written year-on-year, rising to $5.44 billion for the period.

Of that, $1.4 billion was down to the TransRe acquisition for the third-quarter.

Without the addition of TransRe, Berkshire Hathaway reported that premiums written in the first nine months of 2023 rose $497 million (3.8%) compared to 2022.

On top of this, a significant amount of the the incremental P&C premium written in 2023 has come from Warren Buffett’s bet on Florida’s property insurance market, as the reinsurer took a $1 billion limit slice of the Florida Citizens reinsurance renewal this year.

Berkshire Hathaway is acutely aware of the significant property catastrophe risk it has added to the business this year, with its reinsurance chief Ajit Jain acknowledging the firm’s property catastrophe reinsurance book was “very unbalanced” and still significantly exposed to Florida hurricanes.

That was stated even before the Citizens line was assumed, or any other mid-year writings were completed.

Berkshire Hathaway and its chief Warren Buffett have been preparing shareholders for what could happen, with such a large property catastrophe reinsurance exposure and so little retrocession purchased.

The messaging in the quarterly report has been evolving and this latest states, “We have written considerable levels of property business in recent years and we generally do not retrocede the risks we assume. Consequently, our periodic underwriting earnings are subject to considerable volatility from significant catastrophe loss events.”

While losses to the Berkshire Hathaway P&C business are up for the first nine months of the year, this is largely due to the inclusion of TransRe’s book.

But, even with that inclusion, the third-quarter of 2023 year saw losses decrease significantly for the P&C business at Berkshire, with just a 50.8% loss ratio reported.

Despite a big increase in underwriting expenses, in part due to TransRe being included, pre-tax underwriting earnings for the Berkshire Hathaway P&C reinsurance business in Q3 soared to almost $1.5 billion, up significantly from just $23 million after the impact of hurricane Ian a year ago.

Which goes a long way towards showing how the property cat bet is paying off for Warren Bufett.

For the first nine months of the year, the Berkshire Hathaway P&C reinsurance business reported pre-tax underwriting earnings of over $3 billion, well up on the prior year’s $1.4 billion.

These very strong P&C reinsurance earnings will have been very welcome for Warren Buffett, as his conglomerate was heavily impacted by fluctuations in asset values and share prices this year.

The property cat bet is clearly paying off and with Florida such a large part of it, the fact the wind season is in its final official month, it is beginning to look like the bet could pay off in full for Buffett.