NEW YORK—Warren Buffet’s Berkshire Hathaway is in the commercial market for the long haul, despite new capital potentially dampening the momentum of rate increases.
Peter Eastwood, president of Berkshire Hathaway Specialty Insurance, says the influx of alternative capital in the form of catastrophe bonds and sidecars, as examples, has a “market cycle-dampening effect,” and he doesn’t expect the types of dips and spikes in rates associated with prior market cycles.
"That's sort of the way the industry is going to work on a going-forward basis," says Eastwood, sitting in as part of an panel of executive at the Advisen Property Insights Conference June 11.
Eastwood is part of the new capacity into the marketplace, having left AIG with executives David Bresnahan, Sanjay Godhwani and David Fields to join Berkshire. He says it was Godhwani who “convinced” Buffett’s insurance lieutenant, Ajit Jain, that despite the above dynamic, the executives could lead an operation to take advantage of Berkshire’s “tremendous balance sheet” in a more “permanent, long-term-focused way”—providing underwriting returns, and investment returns on what Buffett terms “float”—the pool of premiums held before paying claims.
Eastwood says the new unit will focus to start on E&S lines, catastrophe-exposed property especially, and has already written a “good amount of business.” BHSI has also received positive responses from brokers, he adds. The unit has several dozen new employees, and will continue to hire, he says.
Some on the panel wondered if the alternative capital would last. Would investors bolt if there was a big market loss?
Paul McNamee, president of property and specialty lines insurance for Ace North America, says a large industry loss-event might not scare off new capital sources, but a rise in interest rates and inflation could. Think about a 1-2 percent hit to reserves due to inflation, he says. “That could dwarf a $100 billion market loss.”
Listed with Berkshire as a new market, McNamee mentions China carriers, who are writing much more in the U.S.
“Chinese markets are moving in,” concurs Vic Krauze, CEO of Willis North America. He says the Chinese are also less opportunistic, long-term players in the marketplace.
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