What's going on?
In the latest sign of recent hurricanes taking their toll on insurers, Warren Buffett’s conglomerate, Berkshire Hathaway, reported $3 billion in hurricane-related losses for its insurance businesses on Friday… a hefty chunk of change even for Buffett.
What does this mean?
Berkshire Hathaway’s insurance companies have historically brought in billions that the group would then plow into its other investment areas, e.g. railroads, utilities and retailers. Hurricane damage is typically covered by insurance, but insurance companies themselves insure against such disasters through so-called reinsurers, who are ultimately on the hook for the damage – and Berkshire Hathaway owns both, like reinsurer Gen Re and insurer GEICO.
Why should I care?
The bigger picture: European reinsurers are big casualties of the American hurricanes too.
It’s not just American insurers that are suffering: in recent weeks, German reinsurer Munich Re, French reinsurer SCOR, British insurer RSA Insurance and Swiss reinsurer Swiss Re all said the hurricanes resulted in big losses. Yet global reinsurance stocks have rebounded since an initial big drop a few months ago, partly because reinsurers are expected to raise premiums to fill the holes in their finances – which, in the coming year(s), should boost their revenues.
For you personally: Insurance premiums are likely to jump up.
The insurance industry faces losses of perhaps $100 billion from the recent hurricanes, and they have to plug the gigantic hole in their finances somehow! Insurance is already becoming more expensive and difficult to get in areas at high risk of being hit by hurricanes, like Florida. But you don’t have to be living near a hurricane-hit area to see your premiums rise; rates have been going up all over the US since the hurricanes. And if global reinsurers pass on higher rates to insurers in other countries, those insurers may have no choice but to raise premiums too…