From Breakingviews: Florida’s insurance industry is a mess, and Hurricane Ian only compounded the problems. This imperfect storm suits Warren Buffett’s investing style, writes rob_cyran
Underwriters in the state have been feverishly trying to offload risk following last year’s Category 5 hurricane that was Florida’s deadliest in nearly 90 years. Swiss Re estimates at least $50 billion of Ian-related insured damage. At the same time, the price of reinsurance – or insurance bought by insurers – has been rising dramatically worldwide.
Captaining the lifeboat is Berkshire’s head of insurance, Ajit Jain. After eschewing property-related catastrophe reinsurance for some 15 years, he said at the company’s annual meeting on Saturday that it now has a “very unbalanced” portfolio that could saddle Berkshire with up to $15 billion of losses if another cataclysmic hurricane hits Florida this year. The upside is several billion dollars, Jain said, if Mother Nature turns out to be more forgiving.
Big insurers largely backed off Florida following Hurricane Andrew in 1992. Smaller ones, many of them undercapitalized, stepped in, as storm bills keep getting bigger. Six property insurers in the state declared insolvency last year. Moreover, Florida’s insurer of last resort, Citizens Property Insurance, is growing rapidly, and expects to expand toThe difficulty of backstopping the risk is that reinsurers have recently jacked up rates.
Buffett has said reasonable prices don’t guarantee profit for insurers, but inappropriate prices guarantee losses. The current rates suggest that the upcoming headline will read: “Omaha man lands Florida windfall.”Ajit Jain, Berkshire Hathaway’s vice chairman, said on May 6 that after 15 years of minimal exposure, the company was now heavily exposed to property catastrophe reinsurance, and that the portfolio was “heavily unbalanced” with exposure to Florida.
“If the big 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,” Jain said during Berkshire Hathaway’s annual shareholder meeting in Omaha.Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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