Berkshire Hathaway, the holding company led by Warren Buffett, has reported extraordinary financial results for its insurance and reinsurance businesses, with net underwriting earnings surging by 66% year-on-year to $9.02 billion for 2024. This impressive performance arrives amid claims totaling $1.2 billion from recent weather-related disasters, including hurricanes and wildfires. The company has cautioned investors about potential upcoming losses related to January 2025 wildfires in Los Angeles, estimating pre-tax losses to reach approximately $1.3 billion.
Despite facing significant claims from Hurricanes Helene and Milton, Berkshire's reinsurance arm showcased resilience, achieving net underwriting earnings of $2.7 billion for 2024, compared to $1.9 billion the previous year. A 9% year-on-year growth was observed within the property and casualty (P&C) segment, resulting in earnings of $3.8 billion. The decline to $223 million from life and health insurance earnings, which fell this year, did not overshadow the P&C sector's performance.
Writing about the overall picture, Buffett noted, "Our insurance business also delivered a major increase in earnings, led by the performance of GEICO." The insurance giant GEICO has reported pre-tax underwriting earnings increasing to $7.8 billion from $3.6 billion, fueled by higher average premiums per auto policy, lower claims frequency, and improved operating efficiencies. The premium growth reflects the impacts of current climate conditions, as more people seek comprehensive coverage amid growing threats from natural disasters.
The upward shift is also evident with P&C premiums written, which have dipped slightly by 2.1% to $21.9 billion due to reduced property premiums but have been bolstered by new business and increased participation across certain casualty lines. Conversely, premium earnings were propelled by overall rising rates, posting a 1.4% rise to $22.2 billion, indicating strong underlying demand for coverage as natural disasters become more frequent.
Berkshire's insightful evaluation of loss trends highlights some positive developments. Loss and loss adjustment expenses saw a decrease of 3.3% to $12.2 billion, including estimated liabilities for catastrophic events dropping to $800 million from $900 million recorded the previous year. Berkshire clarified the drop stemmed from lower-than-expected losses within their property division, showcasing improved risk management strategies.
Yet, the shadows of climate change loom large over the insurance industry. Berkshire acknowledges increased costs linked to the rising frequency and severity of natural disasters. Buffett indicated, "Property-casualty (P/C) insurance pricing strengthened during 2024... Climate change may have been announcing its arrival."
Nevertheless, it is key to understand Berkshire’s strategy moving forward, as they navigate potential looming risks driven by the unpredictable nature of climate change. The insurance sector might be at inflection points, where premium rates could escalate sharply should catastrophe events occur at alarming rates.
Notably, Berkshire Hathaway's float, or the total premiums collected versus claims, has expanded from approximately $129 billion at the end of 2019 to around $171 billion by the end of 2024, illustrating the growing financial clout of Berkshire's insurance operations. The correlation of these figures with the environmental realities raises questions as to how companies can sustain profitability when facing catastrophic events, such as wildfires and hurricanes.
Buffett's insights and the company's results place the onus back on the insurance sector to innovate and adapt to the changes wrought by climate change. He stated, "Someday, any day, a truly staggering insurance loss will occur—and there is no guarantee there will be only one per annum." This cautionary note serves as both warning and motivation for insurance firms to evolve their underwriting practices to cope with the new normal caused by weather volatility.
Looking to the future, Berkshire Hathaway seems well-poised for growth, yet the respect for the challenges tied to natural disasters is clear. The company’s resilience has highlighted how adapting practices and updating models is necessary to navigate the stormy seas of insurance costs and claims.
With the backdrop of wildfires and other tragic natural events, the emphasis on mental preparedness and strategic insurance practices will become even more pronounced. The stakes are high; as climate change continues to radically alter our environment, U.S. insurance costs might see unprecedented adjustments causing ramifications for consumers and businesses alike.