Warren Buffett and Berkshire Hathaway Have Scored Another Billion-Dollar Business

Berkshire Hathaway and Warren Buffett are always adding new businesses, and it turns out one insurance business is poised to deliver great results.

Jul 15, 2014 at 7:12AM


Dozens of business make up Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B). But one insurance operation, launched just last year, is already delivering remarkable growth, which could mean major things not just for Warren Buffett, but for all of Berkshire Hathaway's shareholders.

The big business that could
In June of 2013, we learned that Berkshire Hathaway Specialty Insurance (BHSI) had officially started its efforts in America. Launched by none other than oft-praised insurance executive Ajit Jain, BHSI is the commercial property casualty insurance group that focuses on excess and surplus lines insurance, which allows companies to design specific policies and coverage depending on the needs of their businesses. 

At the time, Buffett remarked:

It's offi­cial: We are moving into commercial insurance in a substantial way, and we are here to stay. With our proven underwriting discipline and financial strength, along with a stellar management team, Berkshire Hathaway Specialty Insurance is a welcome solution for customers seeking large-scale property and casualty capacity for the long term.

He went on to add in the letter to Berkshire Hathaway shareholders this year that, thanks to the confidence firms have in Berkshire Hathaway, "BHSI will be a major asset for Berkshire, one that will generate volume in the billions within a few years."

And it may take less than just "a few years" for it to get there.

The running start
Earlier this year, we learned Berkshire Hathaway, in total, saw its total excess and surplus insurance premiums written -- which includes a few of its other businesses -- jump by $150 million, or nearly 40% in 2013, to stand at $561 million. The overall industry only saw premiums increase by 7.6%, and industry leader AIG (NYSE:AIG) saw its premiums actually fall by 4.2%, to $4.8 billion.

Although AIG clearly has the lead in the size of its business, Berkshire Hathaway has more efficient operations as measured by its combined ratio -- which is the measurement of its losses plus its expenses divided by its revenue.

Source: SNL Financial.

But it didn't just end at impressive growth in 2013; in the spring, the president of BHSI, Peter Eastwood, also revealed it is "working hard at some expansion plans in Asia and in Europe as well," and although it is "a little bit further down the road," it will also move to Latin America.

Eastwood went on to add, "We can build business anywhere in the world that we think is appropriate for us to build in, which means generating acceptable profit for Berkshire Hathaway."

The key thing for investors to see
With nearly $500 billion of assets on its balance sheet, it's easy to think Berkshire's days of its growth are long behind it. After all, the growth of the float of its insurance businesses -- the difference between what they receive in premiums from customers versus what is paid on claims -- over the years, has been incredible. But now, a gain of $150 million doesn't exactly move the needle:

Source: Company Investor Relations.

But the growth at these underlying businesses that make up Berkshire Hathaway will be the long-term drivers for this company. Very few individual businesses will move the overall Berkshire business, but that's a good thing. Buffett has de-risked the company's operations to a point where Berkshire can essentially run on its own.

One day, Buffett won't be steering the Berkshire-ship, but shareholders can rest easy knowing that units like BHSI, BNSF, Berkshire Hatahway Energy are chugging along.

Warren Buffett: This new technology is a "real threat"
While there is endless opportunity available to his company, at the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash cow. While Buffett shakes in his billionaire boots, only a few investors are embracing this new market, which experts say will be worth more than $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping into one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Patrick Morris owns shares of American International Group and Berkshire Hathaway. The Motley Fool recommends American International Group and Berkshire Hathaway. The Motley Fool owns shares of American International Group and Berkshire Hathaway and has the following options: long January 2016 $30 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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