Godhwani: BHSI benefits from Berkshire balance sheet and long-term view
The fact that Berkshire Hathaway Specialty Insurance (BHSI) does not buy reinsurance has insulated it from the shift to hard market treaty conditions – especially in property – while its parent’s balance sheet and long-term view has put the insurer at an advantage as it targets attractive E&S opportunities, according to its head of North America Sanjay Godhwani.
Speaking to The Insurer TV at the WSIA Annual Marketplace 2023, the executive highlighted the benefits of being part of giant investment conglomerate Berkshire Hathaway, with BHSI having built a leading market position in the 10 years since it was launched by a team of former AIG executives.
In the latest AM Best report on the surplus lines sector, Berkshire Hathaway at the group level was ranked second behind Lloyd’s with $6.9bn of direct premiums written (DPW) in 2022, giving it a 7.0 percent market share.
At the company level, Berkshire Hathaway’s National Fire & Marine Insurance Company ranked number one, with $3.8bn of DPW and a 3.9 percent market share.
BHSI doesn’t account for all of Berkshire Hathaway’s surplus lines business, but the Peter Eastwood-led carrier grew written premiums by 36 percent last year in attractive market conditions, according to its parent’s financial statements.
Although it operates a dual distribution channel, Godhwani said that BHSI had an intentional focus on the E&S market from its launch given the background of its leadership team and their history and investment in the space, both with the wholesale distribution channel and surplus lines product.
And he said that the carrier has benefited from its parental ownership, including its large balance sheet and a diversified platform which spans a number of businesses such as railroad and the energy sector, providing major income streams away from insurance.
“The simple way to think about it is a bad day in insurance is a bad day for an insurance company, but it’s not necessarily a bad day for Berkshire Hathaway, given everything else they do. So that balance sheet gives us an ability to work in an environment where there’s volatility, and not make abrupt changes, [but instead] take a long-term view,” he commented.
The executive said that Berkshire Hathaway’s long-term view meant that BHSI could be built differently.
He highlighted the property sector as one where volatility can lead to “lots of bad days”.
“In any given year, you can look like a hero and another you can look like you're not a hero based on the outcome,” said Godhwani.
“So if you work for an organisation that has a strength of balance sheet, is thoughtful about how they take on risk, not irresponsible … [and] if they have a long-term view, they actually are okay with volatility as long as you're paid well.
“The key is you've got to be paid appropriately for it, then you can actually go out and write that sort of business,” he commented.
Another advantage for BHSI in property is that the carrier does not buy any reinsurance, because of its parental balance sheet.
“And in the end, given the nature of reinsurance costs in the last 12 months, given the nature of attachment points around reinsurance, that ends up raising the cost of the goods for our peer group; it didn't raise the cost of goods for us.
“So that's a differentiator, in the end too. All those things have played out to be advantages as long as we make good decisions around them, which we've been trying to be fairly thoughtful about,” he continued.
Permanent not cyclical
Godhwani was also asked about whether the growth at BHSI in the surplus lines segment was a cyclical or more permanent phenomenon.
He highlighted BHSI’s commitment to the sector and the position it has built as it has gained recognition from its distribution partners.
“I don’t think it’s cyclical at all, for us, and I don’t think it’s cyclical for the industry, either. I think there’s permanence to it,” said the executive.
And he said that 10 years in, it is still early days for the insurer as it continues to build out its presence.
“There’s many brokers walking around this conference [that] don’t know who we are, they haven’t traded with us yet, so there’s all that opportunity just out of relationships that is to come.
“And then there’s the fact that we’ve only built so many products in the first 10 years. We haven’t gone down market to middle-market to the extent we could. So I think the future is quite bright for us, along with the fact that the industry’s future is quite bright,” he concluded.
Watch the 12-minute interview with BHSI’s Sanjay Godhwani to hear more on:
- BHSI targeting attractive E&S opportunities
- The benefits of the Berkshire Hathaway balance sheet
- BHSI’s intentional focus on E&S, despite its dual distribution model
- The benefits of not having to buy reinsurance
- Why more middle market business may be on the way