Last Friday was the big day, folks. Berkshire Hathaway Inc. (NYSE:BRK.B) released its annual report and Warren Buffett’s annual shareholder letter.
Berkshire remains one of Wall Street’s favorites, and for good reason, but its insurance operations are not the only positive aspect of the company. With its varied subsidiaries, Berkshire presents ample opportunities for investors interested in financials, manufacturing, media, transportation, and other business segments. While Berkshire is a multifaceted company (to say the least), at its core is a huge insurance operation, with GEICO as its largest consumer-facing component.
Since Berkshire is a perennial investor favorite, why not compare it to Wall Street’s latest hedge fund darling, American International Group Inc (NYSE:AIG)? One of the nation’s largest insurers, American International Group Inc (NYSE:AIG) is back in the investment spotlight (the good kind) after years of being shunned. By comparing the two companies in five categories, we’ll be able to see which one is a better insurance investment.
1. Breadth of services: American International Group Inc (AIG)
American International Group Inc (NYSE:AIG) wins this round based on its expansive products that range from basic property and casualty coverage to life and retirement policies. While Berkshire has exposure to all of the same types of products, its insurance operations mainly focus on life and retirement services through reinsurance, which is where Berkshire provides support to the main insurance companies offering the products to clients. AIG does not provide reinsurance to other companies, but focuses on consumer-facing products.
2. Premiums growth: Berkshire
The Gecko is doing his job, as Berkshire totally kicked AIG’s butt in 2012. With an 8.6% improvement in premiums written, Berkshire is the clear winner. American International Group Inc (NYSE:AIG) had a small 1.3%decline in premiums written, which the company offset with an increase in commercial rates around 6%. The chart below shows detail on the premium growth for both companies during the past five years.
Source: Company annual reports and financial supplements.
Berkshire has enjoyed GEICO’s impressive climb toward the top of the auto-insurer totem poll — it has improved its market share from 2.5% to 9.7% for personal auto coverage since 1995. AIG, on the other hand, had a huge decrease in premiums following its federal bailout, which is not a huge surprise. The company has been working its way back to pre-financial crisis levels and currently matches its 2009 premiums total.
3. Underwriting gains: Berkshire
Buffett’s operations once again trounced American International Group Inc (NYSE:AIG) in the underwriting gains department. With a gain of $1.05 billion, Berkshire handily beat AIG’s underwriting loss of $3 billion. Though it should be said that Hurricane Sandy contributed $2 billion to that loss. While American International Group Inc (NYSE:AIG) provides coverage for all types of property damage, Berkshire’s exposure to Sandy was relatively limited to damaged cars, creating a lesser strain on the business’ bottom line.
