Author Topic: Berkshire Hathaway - Insurance Operations  (Read 3712 times)

Jurgis

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Re: Berkshire Hathaway - Insurance Operations
« Reply #10 on: August 15, 2017, 08:20:38 AM »
I think people are making mistake thinking that you need level 4-5 autonomous driving for the number of accidents to drop significantly and impact insurance companies. IMO, active collision avoidance systems are likely to drop the number of accidents almost as much as the level 4-5 and they will come much sooner.

Of course, you still need 10 years+ for the whole auto inventory to get collision avoidance, so I'd say there are ~10 years+ for insurance companies. Also, there will be time IMO when the insurers still charge higher premiums and get extra profits even while the accidents are declining. (The corollary though is last year when Buffett said that Geico had lower margins due to more distracted driving (presumably)).


globalfinancepartners

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Re: Berkshire Hathaway - Insurance Operations
« Reply #11 on: August 15, 2017, 08:41:28 AM »
Big factor is that repair costs (all those sensors in the bumpers, fenders, mirrors, etc) have gone way up.  Lawsuit costs continue to be a very big portion of rates.  Accident frequency and severity has only increased since all these safety features have been introduced.  Likely because of the large screen smart phone.  Auto insurance will always be required because of the liability aspect.

GEICO has been making a calculated bet to sacrifice near term profits in order to grow their business through this period - customer growth at GEICO has been outstanding recently and new customers are not profitable their first year with GEICO.  I think it's a good strategy as GEICO will retain those customers if history is a guide.

GEICO quoted me a policy at a significant discount to USAA, which is anecdotal as far as how aggressive they are being on price right now.  USAA isn't known as a pricey insurer.

I think people are making mistake thinking that you need level 4-5 autonomous driving for the number of accidents to drop significantly and impact insurance companies. IMO, active collision avoidance systems are likely to drop the number of accidents almost as much as the level 4-5 and they will come much sooner.

Of course, you still need 10 years+ for the whole auto inventory to get collision avoidance, so I'd say there are ~10 years+ for insurance companies. Also, there will be time IMO when the insurers still charge higher premiums and get extra profits even while the accidents are declining. (The corollary though is last year when Buffett said that Geico had lower margins due to more distracted driving (presumably)).

Dynamic

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Re: Berkshire Hathaway - Insurance Operations
« Reply #12 on: August 15, 2017, 08:45:58 AM »
I think active collision avoidance carries the risk that people will engage in risk-compensation behaviours and start driving with a small gap to the car in front etc. or other risky behaviour that they believe their car will bail them out of.

Jurgis

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Re: Berkshire Hathaway - Insurance Operations
« Reply #13 on: August 15, 2017, 08:57:26 AM »
I think active collision avoidance carries the risk that people will engage in risk-compensation behaviours and start driving with a small gap to the car in front etc. or other risky behaviour that they believe their car will bail them out of.

As if they don't do that now without collision avoidance.  ::)
Anyway, you might be right somewhat.

At this point I would not change my investment behavior even if I was invested in a pure auto insurer. They definitely have 10+ years of mostly-not-much-change business conditions. And anyone who tries to predict what happens after 10+ years is likely deluding themselves.

Dynamic

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Re: Berkshire Hathaway - Insurance Operations
« Reply #14 on: August 15, 2017, 09:22:38 AM »
I wouldn't want to predict too much or try to create a precise valuation, but I'd be wary enough of the potential disruption to ensure I bought with sufficient margin of safety to limit my losses or make back my investment in a relatively few years.

I was late recognising that local newspaper monopolies had been comprehensively supplanted by the internet and smartphones for a huge chunk of their earnings and it wasn't just the credit crunch that was hitting their ad sales and portion of the older generation who preferred print ads wouldn't be enough to leave very much value in their business model. That was probably my last big investing mistake that I'm so far aware of.

With regard to Berkshire, and even GEICO specifically, I think there's at least 15 years of reasonably good business ahead even if these technologies cause a fairly major disruption in new car sales pretty fast. Even if autonomous Transport As A Service becomes dominant over individual car ownership, the sheer number of miles driven by each TAAS car every year should allow for a fairly good insurance earnings in aggregate, even if the fleet of vehicles declines fairly rapidly and people with older cars in the fleet move over to TAAS because it's so much cheaper. A time of disruption will see some who fail to adapt go bust, but I think GEICO will adapt and take advantage of offering insurance to TAAS vehicles.

longinvestor

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Re: Berkshire Hathaway - Insurance Operations
« Reply #15 on: August 15, 2017, 11:50:42 AM »
I think active collision avoidance carries the risk that people will engage in risk-compensation behaviours and start driving with a small gap to the car in front etc. or other risky behaviour that they believe their car will bail them out of.

+1

Even without sensors and such, in my family, we've had two rear end collisions within the last 10 years. It's not the car you have nor your driving behavior. It's also the behavior of the others on the road. In my case no tech on my car would have helped. I will admit, I do not drive at speeds that are clearly way over the limit. I live in Chicagoland and based on anger I can visibly see behind me in my rearview mirror, autonomous vehicles won't work for me. There are school bus drivers around here who drive recklessly and will absolutely tail you. I refuse to drive faster than what I want to, no matter what the idiot behind me wants me to do.
« Last Edit: August 15, 2017, 01:24:32 PM by longinvestor »

james22

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Re: Berkshire Hathaway - Insurance Operations
« Reply #16 on: August 30, 2017, 02:53:57 AM »
Here’s one more example of how central banks’ global coordinated monetary stimulus in the wake of the financial crisis has increased systemic risk in the US: According to an analysis conducted by BlackRock, insurers are more vulnerable to a market downturn now than they were ten years ago.

The reason? Ultralow interest rates have forced insurers to venture into markets with higher yielding assets, forcing them to stomach more risk along the way. Whereas insurers once tended to adhere to only the safest types of fixed-income products – typically highly rated government and corporate debt – they’re increasingly buying exposure to risky high yield and EM products, along with illiquid private equity funds, to try and boost their earnings back to pre-crisis levels.

These products carry a potentially higher reward for insurers, but heightened risks are also omnipresent. In a downturn similar to the 2008 crisis, BlackRock estimates that US insurers' holdings would drop by 11% - even more than they did during the crisis. Such a drop would be tantamount to $500 billion in losses.


http://www.zerohedge.com/news/2017-08-29/insurance-companies-could-face-staggering-500b-loss-during-next-downturn

Might be an opportunity to buy up come any downturn.

Cigarbutt

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Re: Berkshire Hathaway - Insurance Operations
« Reply #17 on: August 30, 2017, 05:07:21 AM »
It also depends where you are in the underwriting cycle.

https://www.canadianunderwriter.ca/insurance/m-best-projects-combined-ratio-100-3-u-s-industry-2017-1004108128/
http://www.insurancejournal.com/news/national/2017/06/29/456156.htm

But reaching for yield seems to be prevalent these days and, given the unavoidable volatility sometimes down the road, industry players with a sufficient margin of safety on the asset side are likely to benefit.

Time to work on the watchlist.

John Hjorth

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Re: Berkshire Hathaway - Insurance Operations
« Reply #18 on: December 07, 2017, 05:55:42 AM »
I'm not trying to clog up this topic with a Buffett succession speculation post, but have to bring up a cut from a Bloomberg article today: After Decades of Hints, Buffett's heir May Now Be More Apparant.

Quote
... A key distinction between the wo executives is age: Jain is 66, Abel is 55. Buffett is proof that the CEO can do well by shareholders long past typical retirement age. Even so, Jain has been facing some health challenges that could eventually make working more difficult, according to people who've recently spent time with him. ...

Say it isen't so.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

longinvestor

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Re: Berkshire Hathaway - Insurance Operations
« Reply #19 on: December 07, 2017, 06:13:28 AM »
I'm not trying to clog up this topic with a Buffett succession speculation post, but have to bring up a cut from a Bloomberg article today: After Decades of Hints, Buffett's heir May Now Be More Apparant.

Quote
... A key distinction between the wo executives is age: Jain is 66, Abel is 55. Buffett is proof that the CEO can do well by shareholders long past typical retirement age. Even so, Jain has been facing some health challenges that could eventually make working more difficult, according to people who've recently spent time with him. ...

Say it isen't so.
Same sentiment. Ain't no known substitute for him. Carole Loomis called this type of scenario a few years ago. Stop fussing over Buffett 's age. Worry about the next guy. Especially as Buffett keeps motoring on, like the energy bunny.