Posted on February 25 2024
As the FT noted yesterday:
Warren Buffett has warned Berkshire Hathaway shareholders that his sprawling $905bn conglomerate has virtually “no possibility of eye-popping performance” in the years ahead, laying bare the challenges that will confront his successors.
They added
The so-called Oracle of Omaha said in his annual letter on Saturday that “There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Outside the US, there are essentially no candidates that are meaningful options for capital deployment at Berkshire."
As the FT also noted, Berkshire's cash pile, has continued to climb. It hit a record $167.6bn at the end of 2023, up $39bn over the course of the year.
If you are unfamiliar with Berkshire Hathaway, the Wikipedia entry is probably good enough to get a feel, because I am sure that the company makes sure it is right. It is a conglomerate led by Warren Buffett, 93, and until last year by Charlie Munger, who died recently at age 99. Then company was transformed from the 1960s onwards by the two of them buying companies that could either be restructured to show a profit or that had the power to grow quickly. Buffett became one of the richest handful of people in the world as a result.
And now, apparently, there is nothing left for Berkshire Hathaway to buy. There is no company worth parting with cash for. About $10 billion went back to shareholders last year. The rest of the company's cash just accumulates, doing nothing for anyone within the economy at large because, as we know, cash balances like this are not the basis on which loans are made, which always come out of new cash creation.
I can't think of a stronger metaphor for American (and so Western) capitalism having come to the end of the road than this. Buffett is not just suffering from old age. He's out of ideas, and the reason why is that there are no ideas in the marketplace that provide any obvious signs that there is profit to be made by parting with his cash pile.
So-called entrepreneurial activity would appear to be over.
Businesses can no longer generate new wants, however much they spend whilst seeking to do so. The reality is that the world's wealthy have all that they need. Persuading them to spend more is a futile exercise: the wealthy cannot drive growth any more when there is nothing else that can materially improve their collective well-being (which, as an aside, is good news for the green agenda).
On the other hand, we live in a world of massive unmet needs. We face crises that demand action. But our politicians are doing all that they can to limit the size of the state, which is the only agency capable of meeting those needs and addressing those crises. They are doing this, they say, so that room is left for what they think to be the essential private sector activity that they think will drive the growth that they believe is the precondition of additional state spending because they think that is paid for with tax and borrowing, when the reality is that it is paid for with money creation.
The inherent conflict should be obvious. The private sector can see nothing to grow. The rich have run out of the desire to spend on new wants, and are sitting on cash. Simultaneously, those in need are ever more desperate as there is said to be no cash to assist them. And the result is an ever more stressed economy, reflecting an ever more stressed society.
This is the world that we now live in. It is divided, broken, purposeless and angry. And all that is because of the absolute determination of our politicians to follow a cult-like belief that the market has an answer to all known questions when it very clearly has not.
What we need are politicians who believe that they have the power to meet needs, as states so very obviously do.
They could do that by spending more and then taxing the wealthy more to remove the inflationary consequences that would otherwise arise.
And, by changing the rules on tax relief for saving, they could redirect investment away from the meaningless and now futile creation of additional wants into the necessary creation of the resources to address the climate, education, health, energy, housing transport, rising water level, and other crises that we now face where very real rates of return for society can be created.
We could have a better world. Curiously, Berkshire Hathaway's inability to spend tells us that this is not just essential but necessary, because the rich have run out of anything to do with their money. What we now need is the clearest possible expression of the alternative that needs to be created now. And then, and only then, might we diffuse the anger that is beginning ti spill over in our society.
Berkshire Hathaway’s re/insurance businesses generate $5.4bn underwriting gain in 2023
25th February 2024 - Author: Luke Gallin
Berkshire Hathaway, the Warren Buffett-run holding company and conglomerate, has reported net underwriting earnings across its re/insurance operations of $5.4 billion for the full year 2023 compared with a loss a year earlier.
The positive return of $5.4 billion compares with a loss of $30 million in 2022 and a gain of $870 million in 2021, as all of the firm’s re/insurance businesses performed well in 2023.
Starting with Berkshire Hathaway Reinsurance Group, the underwriting result improved from almost $1.5 billion in 2022 to $1.9 billion in 2023, driven by a strong result in the P&C and L&H reinsurance segments.
The P&C reinsurance underwriting result strengthened from $2.2 billion in 2022 to $3.5 billion in 2023, while the L&H reinsurance result rose from $109 million to $354 million. This more than offset a decline to -$1.5 billion in retroactive reinsurance, and a slight dip to $650 million in the unit’s periodic payment annuity.
Berkshire explains that the retrospective adoption of ASU 2018-12 increased the reinsurance arm’s pre-tax underwriting earnings $76 million in 2022 and reduced pre-tax underwriting losses $175 million in 2021 from the amounts previously reported.
In terms of premiums, reinsurance premiums earned grew from $21.8 billion in 2022 to more than $27 billion in 2023, with growth from $16 billion to $22 billion in P&C, and a slight reduction in L&H to $5.1 billion compared with $5.2 billion in 2022.
Within P&C, premiums written in 2023 increased 31.8% over 2022 to $22.4 billion, of which $5.3 billion relates to TransRe Group. The firm attributes the rise in premiums written to net increases in new property business and higher rates.
“We have written considerable levels of property business in recent years and we generally do not retrocede the risks we assume. Our periodic underwriting earnings are subject to considerable volatility from significant catastrophe loss events,” says the firm.
Year-on-year, losses and loss adjustment expenses increased $2.1 billion in 2023 to $12.7 billion, with losses of $3.2 billion from TransRe. Losses incurred from significant current year catastrophes were $900 million in 2023, compared with $2 billion in 2022. The reductions in estimated ultimate liabilities for losses occurring in prior accident years were $1.4 billion in 2023, compared with $1.6 billion in 2022.
Turning to Berkshire Hathaway Primary Group, which consists of several independently managed businesses that provide a variety of primarily commercial insurance solutions, underwriting earnings increased from $393 million in 2022 to $1.4 billion in 2023.
Premiums written increased 24.1% year-on-year to $18.1 billion and premiums earned moved from $13.7 billion in 2022 to $17.1 billion in 2023. Berkshire attributes the growth to increases at BHSI (16%), USLI (16%), BHHC (15%) and MedPro Group (10%) across a variety of coverages and in several markets, and from the acquisition of RSUI and CapSpecialty.
Losses and loss adjustment expenses increased 13.5% year-on-year to $11.2 billion, although losses from significant catastrophes were $37 million in 2023 compared with $641 million in 2022. The loss ratio decreased 6.4 percentage points in 2023 compared to 2022, reflecting lower incurred losses from current year catastrophes and changes in business mix, including the impact of RSUI and CapSpecialty.
At GEICO, primarily a writer of private passenger automobile insurance, underwriting earnings hit $3.6 billion in 2023 compared with a loss of $1.9 billion in 2022, reflecting higher average premiums per auto policy, lower claims frequencies, reductions in prior accident years’ claims estimates, and a reduction in advertising costs.
Despite this, the firm notes that average claims severities continued to rise in 2023 due to higher auto repair parts prices, labor costs, and medical inflation.
Within GEICO, premiums written increased $730 million to $39.8 billion in 2023, while premiums earned increased slightly to $39.3 billion.
At the same time, losses and loss adjustment expenses decreased $4.5 billion, or 12.4% to $31.8 billion in 2023, while the loss ratio came down 12.1 percentage points to 81%, reflecting the impact of higher average premiums per auto policy, lower claims frequencies and increased favorable development of prior accident years’ claims estimates, partially offset by increases in average claims severities.
Across its re/insurance operations, Berkshire has revealed that as at December 31st, 2023, float was approximately $169 billion, up from $164 billion at the end of 2022 and $147 billion at the end of 2021.
“Our combined insurance operations generated pre-tax underwriting gains in 2023 and 2021, and the average cost of float was negative in those years. Our pre-tax underwriting losses in 2022 were $22 million and the cost of float was nominal,” explains the firm.
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