Warren Buffett-led Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) held its annual meeting on a virtual basis on Saturday, May 2 . The Oracle of Omaha expounded on numerous topics, with the effects of COVID-19 obviously dominating the topics discussed.

Luckily, the pandemic had minimal effects thus far on Berkshire's insurance results, as the company doesn't directly insure against pandemics -- at least not yet. Moreover, Buffett pointed out that some other insurers actually do specifically cover pandemics, and they could have significant payouts relative to their sizes.

Still, COVID-19 did affect Berkshire's insurance operations around the edges during the first quarter, and potentially a bit more significantly going forward in 2020. Uncertainties abound in the insurance business generally -- now more than ever. Still, Buffett left the door open to writing pandemic policies in the future.

Warren Buffett looks on  at a prior shareholder event.

Image source:The Motley Fool.

Q1 results

COVID-19 and associated loss reserves didn't prevent from Berkshire from turning an underwriting profit in the first quarter, though that entirely came from its largest segment of GEICO, which writes auto insurance:

Berkshire Hathaway Insurance Segment 

Q1 2020 Underwriting Pre-Tax Profit

Q1 2020 Combined Ratio

GEICO

$984

89.2

Berkshire Hathaway Primary Group

($33)

101.4

Berkshire Hathaway Reinsurance Group

($489)

105.9

Total Insurance underwriting

$462

97.1

Data source: Berkshire Hathaway Q1 2020 10Q. Dollar figures in millions.

From the results, you might think it was the reinsurance group that was primarily affected by coronavirus; however, it was actually the primary group that felt it most. From what I can gather from the filings, the reinsurance group's loss was actually attributed to guarantees on a variable life insurance policies in case the stock market fell – which it did in the first quarter, in a big way. Thus, it's unclear if that loss is permanent, or if Berkshire get have a positive adjustment if and when the market improves.

Meanwhile, for the Berkshire Hathaway primary group, the company's quarterly filing said, "first quarter of 2020 included claim cost estimates and allowances for credit losses attributable to the pandemic, partly offset by lower other underwriting expenses." The company also set aside increased legal reserves.

The primary group is where Berkshire writes commercial multi-peril, with some such policies including business interruption insurance, which is likely why the pandemic was modestly felt here. Still, Berkshire's policies seemingly only cover interruption as a result of property damage, not pandemics. At the annual meeting, Buffett said that the standard language of business interruption insurance was clear about that. However, Buffett anticipates "huge" legal expenses for the entire industry, as insured customers attempt to recover losses stemming from the pandemic. "We will have claims, we will have litigation costs, but proportionally, it's not the same as other companies which have been much heavier in writing business interruption as part of a commercial multi-peril." 

Basically, Buffett appears to think Berkshire  isn't really liable for pandemic losses, but the group has  reserved conservatively, knowing that litigation is coming. 

GEICO gives back

While GEICO was a relative bright spot, it too will be affected by COVID-19 this quarter, though in both positive and negative ways. On the positive side, with so many fewer people driving, accidents and insurance claims will go down. On the other hand, GEICO implemented a moratorium on coverage cancellation for non-payment through May 31, which may be extended according to rules in the different states. Non-payment will definitely affect revenue in the near-term. Additionally, GEICO is giving a 15% discount to all who renew or buy new policies between April 8 and October 7. Buffett anticipates the roughly $2.5 billion in customer discounts is a good guess to reflect the reduced frequency of accidents over the next year.

Would Berkshire ever write pandemic insurance?

Though fortunately not directly exposed to pandemics today, Buffett said that Berkshire would definitely write some sort of pandemic insurance going forward, but only if the price and risk-reward made sense. Thus, the jury is still out as to whether customers will buy pandemic insurance in the future at Berkshire's prices. At the meeting, Buffett said, "we have no reluctance to quote on very unusual things, and very big limits. We're famous for it. We haven't done much of it in certain periods because the prices aren't right." 

As a shareholder, I probably wouldn't be too enthusiastic about Berkshire writing a lot of pandemic insurance, but Berkshire did write a lot of insurance after 9/11 that proved to be profitable.

So who knows? Maybe pandemic insurance will be Berkshire's next big thing. One thing is for sure – Berkshire isn't likely to do anything in insurance that doesn't make financial sense, based on the probabilities. That's what makes it one of the safest stocks in the market, even for an insurance company.