Warren Buffett is more concerned about global interest rates and the reinsurance industry’s declining float then the possibility of a climate change induced super-catastrophes.
“If super-cats become costlier and more frequent, the likely – though far from certain – effect on Berkshire’s insurance business would be to make it larger and more profitable,” Buffett said in his annual investor letter released Saturday.
Citing that Berkshire Hathaway has operated with an underwriting profit for 13 consecutive years with a pre-tax gain for that same period totalling $26.2 billion, Buffett said much of the proper/casualty industry should not expect to see the same results in the coming decade of low rates and investment gains.
“The prolonged period of low interest rates the world is now dealing with also virtually guarantees that earnings on float will steadily decrease for many years to come, thereby exacerbating the profit problems of insurers,” he said. “It’s a good bet that industry results over the next ten years will fall short of those recorded in the past decade, particularly for those companies that specialize in reinsurance.”
Buffett also questioned the “dire” predictions of climate change science, adding even if more extreme weather events do occur Berkshire will be best positioned to profit from them and questioned research that predicts severe global outcomes.
“It seems highly likely to me that climate change poses a major problem for the planet. I say “highly likely” rather than “certain” because I have no scientific aptitude and remember well the dire predictions of most “experts” about Y2K,” Buffett said.
Even if more frequent and severe catastrophes were to occur, Berkshire Hathaway’s “underwriting disciple” would protect Buffett’s empire from losses and allow it to price new business as other insurers and reinsurance fall by the wayside..
“We would also remain awash in cash and be looking for large opportunities to write business in an insurance market that might well be in disarray. Meanwhile, other major insurers and reinsurers would be swimming in red ink, if not facing insolvency,” Buffett said. “As a citizen, you may understandably find climate change keeping you up nights.only as a shareholder of a major insurer, climate change should not be on your list of worries.”
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