No. of Recommendations: 2
Q. Where do you include the annual benefit of underwriting profits? I assume $1.39 BB which I believe is the average over the past 21 years.
A. Buffett didn't include it in the 5-groves. Just another area where the 5-groves IV is conservative. I expect that over time underwriting profits will be nicely positive.
I think this is right, but it's a big omission/ conservative factor.
Bloomstram estimates that total Berkshire earnings in 2022 were $53.9b, after making multiple adjustments, including smoothed underwriting results and smoothed capital gains from the stock portfolio, with underwriting earnings $3.2b of that. That represents a combined ratio of 95%, i.e. 5% of earned premiums falling to pre-tax earnings. As in much of the Bloomstramian analysis, that may be a tad optimistic: here are the pre-tax earnings and percentages from the last 15 years:
Underwriting
2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008
Revenues 74645 69478 63401 61078 57418 60597 45881 41294 41253 36684 34545 32075 30749 27884 25525
Earnings (98) 936 838 417 2010 (3239) 2131 1837 2668 3089 1625 248 2013 1460 2690
% -0.1% 1.3% 1.3% 0.7% 3.5% -5.3% 4.6% 4.4% 6.5% 8.4% 4.7% 0.8% 6.5% 5.2% 10.5% average: 3.5%
It is interesting that the numbers are not great for the last 6 years; maybe trouble with GEICO? But 0% does not seem like the best neutral assumption!
Regards, DTB
