Buffett states Berkshire can handle $400 billion mega-disaster


By Jonathan Stempel

(Reuters) – A huge hurricane, earthquake or other conflagration inflicting unprecedented, catastrophic destruction is most likely at some issue to strike the United States.

Warren Buffett claims: Carry it on.

In his once-a-year letter to shareholders of Berkshire Hathaway Inc , Buffett claimed “no corporation arrives close” to his conglomerate in its skill to monetarily face up to even a mega-catastrophe that causes $400 billion of insurance policy losses.

Buffett explained the odds of such a disaster in any yr is just 2 %, but that Berkshire would lose only about $12 billion, a sum additional than offset by yearly profits from its non-insurance corporations.

“Concurrently, a lot – certainly, probably most – of the p/c planet would be out of business,” he wrote, referring to house and casualty insurers.

“Our unparalleled financial strength points out why other p/c insurers appear to Berkshire – and only Berkshire – when they, on their own, need to order large reinsurance coverages for substantial payments they may well have to make in the far long run.”

Berkshire entered insurance plan in 1967 when it compensated $8.6 million for reinsurer National Indemnity Co and an affiliate.

The sector has due to the fact been the Omaha, Nebraska-centered conglomerate’s major driver of advancement, even as Buffett expanded into railroads, chemical compounds, vitality, industrial products, newspapers, sweet and ice product, underwear and other enterprises.

Berkshire’s several insurance coverage operations also involve the Geico vehicle insurance company and Normal Re reinsurer.

Longtime insurance policy executive Ajit Jain has been in charge of overseeing coverage towards huge or unconventional pitfalls.

In January, Berkshire named Jain a vice chairman overseeing insurance policies operations, cementing his position as a feasible successor to Buffett as Berkshire’s chief executive.

Final calendar year was complicated for Berkshire in coverage underwriting, exactly where it missing $3.24 billion right before taxes and $2.22 billion following taxes, its initially full-12 months reduction considering that 2002.

Hurricanes Harvey, Irma and Maria, as very well as California wildfires, were critical culprits, and the $3 billion pretax price for the hurricanes upset some analysts because of their size.

Even Geico lost $310 million ahead of taxes from underwriting, regardless of boosting rates by 16 percent and guidelines-in-drive by 9 %. Its underwriting loss was $188 million in the fourth quarter.

Berkshire had produced money from underwriting even in 2005, when Hurricane Katrina struck the U.S. Gulf Coast.

That storm at the time brought on $41.1 billion of U.S. insured losses, according to the Insurance policies Details Institute.

However, insurance plan aids fund Berkshire’s development by supplying Buffett with float, or rates gathered prior to promises are paid, that he can devote.

Float totaled $114.5 billion at the close of December, and Buffett claimed it will “probably increase slowly for at the very least a couple yrs.”

As he generally does in his letters, Buffett praised his administrators for preserving coverage development on track, contacting their do the job “conservative and cautious” even with the occasional hiccup.

“What counts are brains and cash,” he wrote. “The supervisors of our several insurance organizations offer the brains and Berkshire gives the capital.”

(Reporting by Jonathan Stempel in New York Editing by Jennifer Ablan and Diane Craft)


Buffett suggests Berkshire can cope with $400 billion mega-catastrophe