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Insurer in Full: Is Berkshire a bellwether for Florida’s reinsurance flock?

Berkshire Hathaway’s sporadic interest in the Florida homeowners market has historically been regarded as an opportunistic play – and for buyers as a market of last resort only to be turned to in desperate times...

But the enthusiasm that the Ajit Jain-led (re)insurance arm is demonstrating at this renewal is intriguing.

Although the 1.6 deadline is still a few weeks away, Berkshire Hathaway has already committed to a number of treaties with appetite for both lower-attaching layers and also higher up towers.

At the recent Berkshire Hathaway annual shareholder meeting earlier this month, Jain revealed the Warren Buffett-led powerhouse was loading up on 2023 cat exposure.

By way of example, he pointed to Florida, where he said Berkshire Hathaway could lose as much as $15bn from a major hurricane. “[But] if there isn’t a loss, we’ll make several billion dollars as profit,” he added.



The veteran reinsurance trader described Berkshire Hathaway as having a “very unbalanced portfolio” in cat.

And on Friday, this publication reported that Berkshire Hathaway has given an expression of interest to write as much as a $1bn line high up on the proposed $4.2bn of new private risk transfer that state-backed Citizens is seeking authorisation to buy at its board meeting tomorrow.

Sources say the interest is in participating on one entire portion of the overall program, which includes multiple layers across the residual insurer’s coastal and personal lines accounts.

They added that the expectation would be that Berkshire Hathaway would look to play in a specific area higher up on one of the placements.

Further details could not be confirmed at the time of publication, although sources say that the interest is not yet a committed line or bind at this stage.



Not a capacity crunch – so far

While Florida capacity isn’t plentiful, this publication reported on Friday that generally the view is there will be enough to go around.

Rate increases of course are going to be very significant again (we reported a wide risk-adjusted range of 25-65 percent up, with the expectation it will settle in the 30-40 percent range).

This would compound several years of double digit increases for reinsurance buyers in the Sunshine State.

That in itself may prove the attraction, with likely all-time high rates on line (RoLs) achievable in some areas of programs.

And writing low down on private domestic carrier cat programs at RoLs of 80 percent or more may look like a no-brainer, just as writing high up on Citizens (which didn’t attach layers above the FHCF with Ian last year) might look pretty low risk at much improved pricing.

But could it also be that Jain (and Buffett) are betting on a better future in Florida following the wave of extensive reforms in the recent special legislative sessions?

Perhaps the appetite to participate in a role that doesn’t quite look to be a market of last resort indicates confidence that the tide has turned on litigation costs that have led to multiple years of losses for Florida domestic carriers?

Competitive dynamics

There is naturally intrigue as to the impact Berkshire Hathaway’s front-foot attitude to Florida risk will have on the behaviour of other reinsurers.

While there is no indication of capacity pouring into the peak zone to drive down price, there are suggestions of a shift in dynamics around competition and influence on others that have been sitting on the sidelines.

If Berkshire is in, they may be saying, then surely it’s an opportunity that should not be missed.



There is also anecdotal evidence that some reinsurers are making their displeasure known to brokers about being signed down on certain portions of programs. Given the struggle to fill placements this time last year – and the orderly nature of this renewal in comparison to the July finish for many programs in 2022 – that does represent a change in the mood music.

If last year the right strategy for reinsurers was to hold back capacity and secure the most attractive pricing possible by participating on shortfall covers, then this year those that didn’t deploy early may have left it too late.

The market looks to be peaking for Florida reinsurers. And with the first real impacts of reforms expected to begin to show up in results over the coming year, that could make for very different dynamics in 2024 – especially if the wind doesn’t blow...


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