Berkshire Hathaway's 2024 results
The Warren Buffett run holding company conglomerate Berkshire Hathaway reported its 2024 results on 22nd February.
The most important of the businesses owned by BH are insurance businesses conducted on both a primary basis and on a reinsurance basis, a freight rail transportation business and a group of utility and energy generation and distribution businesses.
Major investment decisions and all major capital allocation decisions are made by Warren E. Buffett, Chairman of the Board of Directors and Chief Executive Officer, age 94.
BH coined the concept of an insurer's "float" which comprises funds provided from policyholders generated through underwriting activities that are held for investment. On a consolidated basis, BH's float has grown from approximately $129 billion at the end of 2019 to approximately $171 billion at the end of 2024.
The financials are available here.
- Insurance underwriting earnings grew 66% from US$5.4bn to US$9.0bn.
- Investment gains/losses in 2024 include after-tax realized gains of US$79.6bn
- Preliminary estimate of pre-tax losses of approximately US$1.3 billion from the 2025 LA wildfires
Warren Buffett's Letter to Shareholders (pages 5-15 of the financials) contains several references to the (re)insurance market which are copied below:-
"In general, property-casualty (“P/C”) insurance pricing strengthened during 2024, reflecting a major increase in damage from convective storms. Climate change may have been announcing its arrival. However, no “monster” event occurred during 2024. Someday, any day, a truly staggering insurance loss will occur – and there is no guarantee that there will be only one per annum."
"P/C insurance continues to be Berkshire’s core business. The industry follows a financial model that is rare – very rare – among giant businesses. Customarily, companies incur costs for labor, materials, inventories, plant and equipment, etc. before – or concurrently with – the sale of their products or services. Consequently, their CEOs have a good fix on knowing the cost of their product before they sell it. If the selling price is less than its cost, managers soon learn they have a problem. Hemorrhaging cash is hard to ignore."
"When writing P/C insurance, we receive payment upfront and much later learn what our product has cost us – sometimes a moment of truth that is delayed as much as 30 or more years. (We are still making substantial payments on asbestos exposures that occurred 50 or more years ago.)"
"This mode of operations has the desirable effect of giving P/C insurers cash before they incur most expenses but carries with it the risk that the company can be losing money – sometimes mountains of money – before the CEO and directors realize what is happening."
"In recent decades, this “money-up-front, loss-payments-later” model has allowed Berkshire to invest large sums (“float”) while generally delivering what we believe to be a small underwriting profit. We make estimates for “surprises” and, so far, these estimates have been sufficient."
"We are not deterred by the dramatic and growing loss payments sustained by our activities. (As I write this, think wildfires.) It’s our job to price to absorb these and unemotionally take our lumps when surprises develop. It’s also our job to contest “runaway” verdicts, spurious litigation and outright fraudulent behavior."
"No private insurer has the willingness to take on the amount of risk that Berkshire can provide. At times, this advantage can be important. But we also need to shrink when prices are inadequate. We must never write inadequately-priced policies in order to stay in the game. That policy is corporate suicide."
"Properly pricing P/C insurance is part art, part science and is definitely not a business for optimists. Mike Goldberg, the Berkshire executive who recruited Ajit, said it best: “We want our underwriters to daily come to work nervous, but not paralyzed.”"
"All things considered, we like the P/C insurance business. Berkshire can financially and psychologically handle extreme losses without blinking. We are also not dependent on reinsurers and that gives us a material and enduring cost advantage. Finally, we have outstanding managers (no optimists) and are particularly well-situated to utilize the substantial sums P/C insurance delivers for investment."
"Over the past two decades, our insurance business has generated $32 billion of after-tax profits from underwriting, about 3.3 cents per dollar of sales after income tax. Meanwhile, our float has grown from $46 billion to $171 billion. The float is likely to grow a bit over time and, with intelligent underwriting (and some luck), has a reasonable prospect of being costless."
"Berkshire’s insurance companies maintain capital strength at exceptionally high levels, which differentiates them from their competitors. The combined statutory surplus of Berkshire’s U.S.-based insurers was approximately $310 billion at December 31, 2024. Berkshire’s major insurance subsidiaries are rated AA+ by Standard & Poor’s and A++ (superior) by A.M.Best with respect to their financial condition and claims paying ability."