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Berkshire makes huge COVID provisions for commercial, reinsurance arms

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US conglomerate Berkshire Hathaway has made huge provisions for potential losses and claims from the pandemic, denting the underwriting results of its commercial insurance and reinsurance business for the second quarter.

The Berkshire Hathaway Primary Group, which provides commercial solutions, recorded a fall in pre-tax underwriting earnings to $US96 million ($96 million) in the June quarter from $US167 million ($232 million) a year earlier.

Losses and loss adjustment expenses cost the division about $US1.58 billion ($2.2 billion) during the period while premiums written fell 9.3% to $US2.15 billion ($3 billion).

For Berkshire Hathaway Reinsurance Group’s property and casualty unit, the business made a pre-tax underwriting loss of $US643 million ($892 million) compared with a $US198 million ($274 million) profit a year earlier. Premiums written rose 28.7% to nearly $US3 billion ($4.2 billion).

The results were impacted by a 77.1% rise in losses and loss adjustment expenses increased to $US2.58 billion ($3.6 billion). Berkshire Hathaway says the losses and loss adjustment expenses reflect estimated COVID-19 related claims of around $US350 million ($486 million) in the second quarter and $US575 million ($798 million) in the first six months of 2020.

“Underwriting results in 2020 of our commercial insurance and reinsurance businesses were negatively affected by estimated losses and costs associated with the COVID-19 pandemic,” the group said. “These include estimated provisions for claims and uncollectible premiums and incremental operating costs to maintain customer service levels at certain underwriting units.”

The business warns the potential effects of the pandemic “may be further affected by future judicial rulings and regulatory and legislative actions pertaining to insurance coverage and claims that we cannot reasonably estimate at this time”.

Geico, its motor insurance arm, increased its pre-tax underwriting profit to $US2.06 billion from $US393 million. The results reflected significant declines in losses and loss adjustment expenses attributable to lower claims frequencies from the effects of less driving by policyholders during the pandemic.

The insurance businesses made $US806 million ($1.2 billion) in overall underwriting earnings for the June quarter, up from $US353 million ($489 million) a year earlier.