Berkshire Hathaway
has increased its insurance exposure to Florida, opening it up to a possible $15 billion loss if there is a major hurricane in the state.
Ajit Jain, Berkshire’s head of insurance operations, made the comments Saturday at the company’s annual meeting in Omaha, Nebraska. Berkshire took on much of the additional exposure in April.
The Florida hurricane insurance market is one of world’s biggest for any catastrophe as insurers seek to lay off risk in the reinsurance market where Berkshire is leader. The Atlantic hurricane season, according to the National Weather Service, begins June 1 and end Nov. 30.
Florida is at high risk because of significant coastal development—plus rising construction costs—and that was underscored by the estimated $50 billion to $65 billion of insured losses last September from Hurricane Ian, which hit the state’s southwest coast. A direct hit on Tampa or Miami would have been far more costly. Global warming is believed to be heightening the risks.
A shareholder asked Jain about Berkshire’s property and casualty exposure to catastrophes.
Jain discussed Berkshire’s low exposure to property losses for most of the past 15 years because “prices have not been attractive.”
That has changed with better pricing, Jain said, and Berkshire lifted its Florida exposure in particular around April 1, a quarterly date when reinsurers take on new exposure.
“We had a lot of powder dry, and we were lucky that we kept the powder dry because April 1 suddenly prices zoomed up again a lot higher than what they were on January 1 and started to look attractive to us. So now we have a portfolio that is very heavily exposed to property catastrophe,” Jain said.
Berkshire has particular exposure to Florida, he said.
“And of course, if the hurricane happens in Florida, we could lose—across all the units, we could lose as much as $15 billion. And if there isn’t a loss, we’ll make several billion dollars as profit,” he said.
Berkshire, he said, has an enormous insurance capital base of close to $300 billion and generally is willing to lose no more than 5% from a single natural disaster such as a hurricane or earthquake.
Jain said when he called CEO Warren Buffett to ask him to boost Berkshire’s exposure by $2 billion to $15 billion, the phone call lasted less than 30 seconds. Buffett has huge confidence in Jain, who has worked at Berkshire since the mid-1980s.
Berkshire’s P&C reinsurance business has been consistently profitable under Jain’s leadership.
“I hope he calls me again,” Buffett said, referring to another potentially large reinsurance transaction.
Write to Andrew Bary at [email protected]
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