Berkshire Hathaway’s insurance business remains a cornerstone of the company’s operations. As of the fiscal year 2023, Berkshire’s insurance segment boasts a business volume of $83 billion, accounting for 40% of Berkshire Hathaway’s total operating earnings (excluding operating income). Insurance income formed 40% of Warren Buffet’s Berkshire Hathaway’s operating earnings in 2023.
– The insurance business has about 14 companies – acquired through a journey of 57 years, worth around 83bn$ in volume
– Two kinds of income from insurance: underwriting & investments. The insurance float maintained by Berkshire Hathaway group is at 168bn$
– The underwriting income stood at 5.4bn$ while investment from insurance income was at 9.5bn$ in 2023 FY
– The business has a presence in almost all of the world through subsidiaries or distribution licenses – 175 countries in exact numbers
– India has been a focus area for reinsurance, distribution was tried a decade back or so, but due to FDI restrictions & regulatory norms, restricted presence for now.
History, Growth and Acquisitions
Berkshire Hathaway ventured into the insurance industry 57 years ago with the acquisition of National Indemnity Company and its sister company, National Fire & Marine, for $8.6 million. Today, National Indemnity stands as the world’s largest property and casualty (P&C) insurer by net worth.
Over the years, Berkshire Hathaway has pursued strategic acquisitions and expansions, including:
As of 2024 Berkshire manages approximately 14 different re/insurance businesses spread across 175 countries.
Investment Strategy
According to Berkshire Hathaway, the primary reason for investing in the insurance sector is the advantage of having “float.” This refers to the “collect now, pay later” model prevalent in property and casualty (P&C) insurance, which allows these companies to hold large sums of money that are available for investment. As of the fiscal year 2023, Berkshire’s insurance operations maintain a significant float of $168 billion. The company’s annual report indicates that even if there is a decline in the float, it will not exceed 3% in any fiscal year.
Earnings from Operations in Fiscal Year 2023-24
The insurance business generated approximately $15 billion in income for FY 2023. This accounts for 40% of the total operational earnings generated by Berkshire. The insurance investment income contributed $9.5 billion, while underwriting income accounted for $5.4 billion.
The insurance underwriting earnings are through three entities that contribute towards Berkshire’s insurance business; Berkshire Hathaway Reinsurance, Berkshire Hathaway Primary Group and GEICO.
GEICO accounts for 52.6% of the insurance underwriting income, followed by Berkshire Hathaway Reinsurance with a contribution of 27.4% and Berkshire Hathaway Primary Group with a contribution of the remaining 20%.
Berkshire Hathaway in India
Berkshire Hathaway has long sought to establish a strong foothold in India. Berkshire Hathaway has been trying to enter India through either a joint venture (JV) or an entity with majority ownership for more than 10 years, aiming to distribute the wide suite of Berkshire-managed insurance company products to the largest population in the world.
However, due to Foreign Direct Investment (FDI) and regulatory restrictions, their presence has been limited. The reinsurance business has been active from 2012 with partners such as BAGIC, New India, and National Insurance. It should be noted that apart from reinsurance, Berkshire Hathaway India was incorporated in 2011 for selling and distributing general insurance products in India through an online distribution portal. The entity obtained a Corporate Agency licence to distribute insurance, but the team shut down its operations in 2013.
The India insurance operations of Berkshire Hathaway Inc expanded to a 100-member team. These operations were engaged in distributing retail insurance products like car insurance through direct channels such as the internet (www.BerkshireInsurance.com) and telesales. The leadership team for the India operations included Arun Balakrishnan as Group Chairman & CEO, Xceedance, and Amit Tiwari as President EMEA & APAC, Xceedance, along with other team members of the present-day Xceedance.
Another notable investment of Berkshire in the Indian insurance sector would be PayTM, which was in the process of obtaining a carrier licence in India. There is a strong anticipation to see more insurance investments by Berkshire group in the coming years in India.
