About Berkshire Hathaway: Berkshire Hathaway is a holding company that owns a large number of subsidiaries engaged in several different business activities. Most important among the businesses owned by Berkshire Hathaway are the insurance businesses that the company conducts on both a primary and reinsurance basis. The other important businesses owned by Berkshire Hathaway include a freight rail transportation business as well as a group of utility and energy generation and distribution businesses. However, the company also owns several other smaller businesses that are engaged in a diverse range of activities.
Berkshire Hathaway is led by Warren Buffett, one of the most successful investors of all time and also known as Oracle of Omaha who is renowned worldwide for his investment wisdom.
One important thing to know about the business model of Berkshire Hathaway is that all the businesses it owns are managed on a decentralized basis which means each one operates independently. Moreover, the company does not have any centralized or integrated business functions like sales, marketing, sourcing, legal or human resources. The corporate headquarters of Berkshire have absolutely minimum involvement in the day to day operations of the subsidiary businesses. The top management participates only in case of significant decisions related to capital allocation, selection of CEOs, investment-related decisions, etc.
Insurance and Reinsurance Businesses:
Berkshire Hathway conducts its insurance and reinsurance businesses through several US and foreign-based insurance business entities. The insurance businesses that Berkshire owns provide insurance and reinsurance of property and casualty and life, accident, and health risks worldwide.
Primary Insurance and Reinsurance:
In the case of direct or primary insurance activities, the insurer assumes the risks from the persons or organizations who are directly subject to the risks. Such risks can be related to property, casualty, health, finance or other types of perils arising from an insurable event. However, in the case of reinsurance, the reinsurer assumes only definite portions of the risks that the other direct insurers or reinsurers assumed in their own insurance activities.
Generally, the reinsurance contracts are classified as treaty contracts or facultative contracts. Treaty reinsurance refers to the reinsurance coverage for the whole or a portion of a specific class of risks that the direct insurer passes to the reinsurer. Facultative reinsurance, on the other hand, involves the coverage of specific individual underlying risks.
One main factor that differentiates the Berkshire insurance companies from the competitors is their exceptional capital strength. The combined statutory surplus of the Berkshire Insurance Companies based in the US, as of December 2019 was $216 billion (Annual report, 2019).
The insurance underwriting operations of Berkshire Hathaway include the following three Groups: GEICO, Berkshire Hathaway Primary Group, and Berkshire Hathaway Reinsurance Group.
GEICO:
GEICO has its headquarters in Chevy Chase, Maryland, United States. Its insurance subsidiaries include the following:
- Government Employees Insurance Company,
- GEICO General Insurance Company,
- GEICO Indemnity Company,
- GEICO Casualty Company,
- GEICO Advantage Insurance Company,
- GEICO Choice Insurance Company,
- GEICO Secure Insurance Company,
- GEICO County Mutual Insurance Company and
- GEICO Marine Insurance Company
These companies mainly offer private passenger automobile insurance to individual buyers in all the 50 states of the US and the District of Columbia. The company insures motorcycles, all-terrain vehicles, recreational vehicles, boats and small commercial fleets. Apart from that it also acts as an agent for the other insurers offering insurance coverage to homeowners, renters, life and identity management insurance to individuals in areas other than the ones GEICO offers.
GEICO markets its businesses mainly through direct marketing channels. The company submits insurance forms to companies through the internet or phone and to a small extent also through captive agents. (Captive agents are insurance agents that work for one company only.) GEICO has established a large nationwide network to conduct its business. It has its regional service centers as well as claim adjustment facilities and other facilities in 39 states.
GEICO has a large number of competitors in the United States market. Some of the leading competitors of Geico include State Farm, USAA, Progressive and All State. GEICO competes for private passenger automobile insurance customers in the preferred, standard and non-standard risk markets with companies selling to the customer directly apart from the companies using agency sales forces. Over the last several years, the company has been aggressively investing in advertising campaigns. (Well, most insurance companies do. Learn why.) Apart from that, the company has also adopted competitive rates to grow its market share and customer base. Over the last five years, GEICO has enjoyed an approximate 35% growth in voluntary policies-in-force. Based on 2018 data published by AM Best, Geico had the second largest market share in the automobile insurance market of the United States (13.4% approximately). According to the estimates by Geico management, the market share of GEICO improved to 13.6% in 2019. Some of the main factors that have contributed to the success of GEICO include its focus on customer satisfaction as well as its cost-effective direct marketing methods. For managing and settling claims, the company uses its own claims staff.
Berkshire Hathaway Primary Group:
The Berkshire Hathaway Primary Group of the BH primary Group as it is popularly known is a group of independently managed insurance companies that provide a large range of insurance coverages mainly to policyholders located in the United States. The insurers included in the group are as follows:
NICO and its affiliates (NICO Primary)
NICO and its affiliatesunderwrite commercial motor vehicle and general liability insurance on an admitted basis as well as on an excess and surplus basis. They offer insurance coverages throughout the US mainly through insurance agents and brokers. NICO primary is based in Omaha, Nebraska. NICO acquired MLMIC Insurance Company (“MLMIC”) in October 2018. For more than 40 years, MLMIC has been among the leading writers of medical professional liability insurance in New York State. Mostly, MLMIC distributes its policies on a direct basis to medical and dental professionals, health care providers, and hospitals.
Berkshire Hathaway Homestate Companies (“BHHC”)
It is a group of insurance companies offering workers’ compensation, commercial auto, and commercial property coverages to a diverse group of customers. BHHC provides its services throughout the United States and can provide first-dollar and small to large deductible workers’ compensation coverage to employers across all states except the states where coverage is available only through the state-operated workers’ compensation funds. BHHC is also based in Omaha, Nebraska.
Berkshire Hathaway Specialty Insurance (“BH Specialty”):
BH Specialty provides commercial property, casualty, healthcare professional liability, executive and professional lines, surety, travel, medical stop loss, and homeowners insurance. It provides excess insurance, as well as admitted insurance and surplus insurance. Outside the US, it provides locally admitted insurance. It is based in Boston Massachusetts and also has regional offices across several cities in the United States. BH Specialty also has international offices located in Australia, New Zealand, Canada as well as several Asian and European countries. BH Specialty uses wholesale and retail insurance brokers, as well as managing general agents to write business.
MedPro Group (“MedPro”)
MedPro is among the leading providers of healthcare liability in the United States. It provides customized HCL insurance, claims, patient safety and risk solutions to healthcare professionals including physicians, surgeons, dentists, and others as well as hospitals, senior care, and other healthcare facilities. MedPro also provides healthcare liability solutions in Europe. Apart from that, it offers specialized accident and health insurance solutions to colleges and other customers through its subsidiaries and other Berkshire affiliates. MedPro is based in FortWayne, Indiana.
U.S. Liability Insurance Company (“USLI”)
It is a group of five specialty insurance providers that underwrite commercial, professional and personal lines insurance on an admitted basis, as well as an excess and surplus basis. USLI uses wholesale and retail insurance agents to market its policies in 50 states of the United States as well as the District of Columbia. The five companies that are a part of USLI also underwrite and market a large range of specialty insurance products. USLI is based in Wayne, Pennsylvania.
The Berkshire Hathaway GUARD Insurance Companies (“GUARD”)
It is also a group of five insurance companies like USLI. These companies provide workers’ compensation, business owners’, commercial auto, commercial packages, and homeowners’ products to more than 350,000 small and mid-sized businesses. Apart from these, GUARD offers complimentary professional liability and umbrella products throughout the United States. GUARD offers its policies through independent agents as well as retail and wholesale brokers. It is based in Wilkes-Barre, Pennsylvania.
Central States Indemnity Company of Omaha
It is based in Omaha, Nebraska and mainly writes Medicare supplement insurance.
Berkshire sold its 81% interest in Applied Underwriters, Inc. (“Applied”) in October 2019.
Berkshire Hathaway Reinsurance Group:
The combined global reinsurance business of Berkshire Hathaway Group is referred to as Berkshire Hathaway Reinsurance Group (BHRG). The Group provides a wide range of insurance coverages including property, casualty, life and health risks to insurers and reinsurers worldwide. The group writes reinsurance business through National Indemnity Company (NICO) and its subsidiaries (called NICO Group collectively), as well as other Berkshire, owned insurance subsidiaries and the General Re Corporation. BHRG has its underwriting operations based in Stamford, Connecticut, United States. Apart from the United States, BHRG also conducts its business activities in the United States.
The NICO Group offers traditional property/casualty reinsurance on both an excess-of-loss and a quota-share basis, catastrophe excess-of-loss treaty and facultative reinsurance, and primary insurance on an excess-of-loss basis for large or unusual risks for insurance clients throughout the world. A significant portion of NICO Group’s annual reinsurance premium volume is currently derived from a 20% quota-share agreement with Insurance Australia Group Limited (“IAG”). This agreement will expire on July 1, 2025. The Insurance Australia Group Limited (“IAG”) is a multi-line insurer that provides its services in Australia, NewZealand as well as several other countries in the Asia Pacific region.
The General Re Group conducts property and casualty reinsurance businesses globally.It writes reinsurance contracts on both a quota-share and an excess basis for various lines of business. These contracts are mainly in the form of treaties and to a small extent also on a facultative basis. In North America, General Re Group conducts its business through General Reinsurance Corporation (GRC). GRC is licensed in the District of Columbia and all the states of the US except Hawaii where it is an accredited insurance provider. It has a large network in North America which includes its Stamford, Connecticut based headquarters as well as 13 branch offices in the US and Canada.
The General Re Group in North America includes General Star National Insurance Company, General Star Indemnity Company, and Genesis Insurance Company. These companies offer a broad range of specialty and surplus lines and property, casualty and professional liability coverages. They market their services using a select group of wholesale brokers, managing general underwriters and program administrators. Apart from that, these companies offer solutions that cater to the unique needs of a public entity, commercial and captive customers.
General Re Group conducts its international business on a direct basis through General Reinsurance AG (“GRAG”) and its various subsidiaries and branches. GRAG has its headquarters in Cologne, Germany. It also has its subsidiaries and branches in 23 countries. General Re Group also writes its international business through brokers including its wholly-owned subsidiary Faraday Underwriting Limited (“Faraday”).
Apart from these, the General Re Group conducts a global life and health reinsurance business. The General Re Group writes life, disability, supplemental health, critical illness and long-term care coverages in the US as well as abroad. It markets its life/health business on a direct basis. Around 27% of the aggregate life/health net premiums that the General Re Group wrote were in the United States, versus 18% in Western Europe and 55% throughout the rest of the world.
Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”), is a subsidiary of NICO. BHLN and its affiliates write reinsurance that cover various forms of traditional life insurance exposures and, on a limited basis, health insurance exposures.
Moreover, NICO periodically writes retroactive reinsurance contracts and BHLN writes periodic payment annuity insurance policies and reinsures existing annuity-like obligations.
Other Sources: Berkshire Hathaway Annual Report 2019.
