The insurance has grown to become the most precious cash cow in Berkshire Hathaway.
The industry could undergo significant changes in the coming decades.
Berkshire is well equipped to fit.
Berkshire Hathaway(NYSE: Brk.a)(NYSE: Brk.b) has crushed the S&P 500(Snpindex: ^GSPC) Over the past 60 years thanks in part to the investment decisions experienced on long -term actions American Express and Coca-Cola – and more recently Apple. But Berkshire’s bets on public companies can cease to be the thread of their success.
On May 3, Berkshire published its first quarter results, which included a new cash position, cash equivalents, and investments in US treasure bills of $ 342.39 million. From May 2, the value of Berkshire’s public capital portfolio was $ 277.41 billion, or about a quarter of its $ 1.16 trillion market lid. The rest of the Berkshire value comes from his subsidiaries.
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Berkshire has many valuable companies of total property, from the BNSF railway to the Berkshire Hathaway Energy utility giant. But by far, the most important category is your property and victims (P&C) insurance companies. At the annual meeting of Saturday’s Berkshire shareholders, investors had many questions about the future of P&C companies: how they would go out in front of a private capital investment to the change in the landscape of insurance in the autonomous era.
Potential changes in P&C insurance are enough to derail the Berkshire Hathaway Investment Thesis? Here are the main emblematic of what Warren Buffett and the Vice President of Warren Buffett and Berkshire insurance operations, Ajit Jain, during the annual meeting.
Image Source: Getty’s pictures.
In the first quarter, income for insurance and combined insurance investments were $ 4.23 billion, or 43.9% of the total operational income.
As insurance has grown, it has become a bigger topic at Berkshire’s annual meetings. And for a good reason, taking into account its impact on operating income.
Berkshire has kept its focus on the insurance industry: distanced from the life insurance business, now dominated by private capital. During the annual meeting, Buffett and Jain said that private capital companies can make a lot of money in this area, but that leverage and credit risk are not attractive to Berkshire from the point of view of risk management.
Another change in the insurance business has been the increase in autonomous vehicles. A audience member asked if this increase would change the insurance business subscription requirements. Buffett replied, “We look forward to the change in all our ideas,” welcoming changes in the automobile insurance industry. He also said that an annual automobile insurance policy in the 1950’s could cost up to $ 40, while today it would not be out of the commune to have an annual $ 2,000 policy. Although the cost of insurance increases about 50 times, Buffett said that accidents have fallen more than 80%. So the perspective of autonomous vehicles that reduces accidents do not necessarily jeopardize the insurance investment opportunity.
Jain said that the complete autonomy of the vehicle could transform the automobile insurance business to concentrate on the risks of the operator’s error to focus on the errors and omissions of the automobile manufacturer in creating autonomous vehicle driving capacities, which would essentially become a product responsibility problem. Buffett continued to reaffirm his confidence that the car business has been a huge growth industry, saying that “we have unusual advantages in the insurance business that cannot be replicated by competition.”
It is worth noting that we are far from full autonomy on the roads of the United States. As autonomous vehicles constitute a greater part of the mix of vehicles and meetings between autonomous vehicles and vehicles driven by humans, it would not be strange for insurance to become an even more profitable business, either through policies controlled by self -employed vehicle owners, or perhaps by automobile manufacturers, including a policy with the sale of the vehicle as a value option.
Tesla(NASDAQ: TSLA)For example, it has entered the insurance business through real-time insurance of Tesla, which measures a security score and offers discounts depending on whether its “full self-teaching” feature is used at least 50% of the time. However, securing totally autonomous vehicles is a different animal.
The widespread adoption of autonomous vehicles would be a game changing game for the P&C business, but it is a adjustment that the entire industry has to adapt, not just Berkshire. However, insurance has become a crucial element of the Berkshire Hathaway Investment Thesis, so you may want to control how technological advances affect the Berkshire Subscription Criteria and Operational Results.
When you look at Berkshire (as in any company), it is best to focus on where they will spend several years from now on, instead of being too trapped in quarterly or annual results changes. As Buffett said during the annual meeting of Saturday’s shareholders, “we do nothing based on its impact on quarterly or annual results.”
Keeping this philosophy will probably give Berkshire Hathaway an advantage in navigating vehicle autonomy. The long-term mindset could even lead to a market share in the industry, especially if its competitors are more interested in rapid money than to build lasting companies.
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American Express is an advertising partner of Motley Fool Money. Daniel Foelber It has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Apple, Berkshire Hathaway and Tesla. The mold’s fool has a Outreach policy.
