Buffett/Berkshire - general news

[aws]

Leaving aside the bizarre interpretation of what can be considered a covered loss, shouldn't the liability of the insurer be capped at the policy limit, which would surely be less than $5 million?

[gfp]

3 minutes ago, aws said:

Leaving aside the bizarre interpretation of what can be considered a covered loss, shouldn't the liability of the insurer be capped at the policy limit, which would surely be less than $5 million?

 

In my experience, or at least in my state, if a plaintiff offers to settle with the insured for the policy limit or below and the insurance company declines to take that settlement - the insurer is now on the hook for paying ultimate awards beyond the policy limits.  That is why there will frequently be a settlement proposed a couple bucks below the policy limit even when it seems bonkers at the time.

 

In this case, she offered to settle the claim for $1 million and GEICO did not take her up on it.  That was pre-arbitration.

[aws]

That makes sense. So you have to choose between a potentially outrageous settlement offer or risk unlimited liability in a trial or arbitration, and you have to defend every lawsuit against an insured no matter how frivolous to avoid risking a default judgment. No wonder insurance is a tough business. 

[Spekulatius]

10 hours ago, LC said:

"I got pregnant in a Geico insured car, now Geico you've got 18 years of support to pay..."

Yep, imaging doing this and having an “accident”. No worries, this why you have auto insurance:

[RedLion]

8 hours ago, aws said:

That makes sense. So you have to choose between a potentially outrageous settlement offer or risk unlimited liability in a trial or arbitration, and you have to defend every lawsuit against an insured no matter how frivolous to avoid risking a default judgment. No wonder insurance is a tough business. 

 

So I work in this field, and the deal is that insurance is a contractual arrangement. Most, if not all states, have an implied warranty of good faith and fair dealing implicit in every contract (insurance or otherwise). A lawsuit can be brought for "bad faith" or breach of the warranty of good faith and fair dealing, and the damages for bad faith are not limited to the contractual limits set in the first place. 

 

So if an insurance company has an underinsured/uninsured motorist coverage for $100k, you're rear ended by an uninsured motorist and suffer severe injuries, medical treatment, physical therapy, out of work, in severe pain, miss a family vacation to Portugal, etc. etc. and then your insurance company refuses to pay out your policy limits, and offers a $50k. Then you go to arbitration, and your damages come in at $300k. This would be a good case for a bad faith lawsuit, and damages can include the attorney's fees for arbitration, emotional distress related to your insurance company negotiating in bad faith, and even punitive damages. 

 

Your insurance company never has to accept an outrageous settlement offer. If they offer $90,000, and the arbitration comes back at $95,000 or $101,000, it's unlikely that a bad faith lawsuit would make it very far IMHO. 

 

So these issues do make insurance a tough business, but they're also all baked into the underwriting. So the more insurance claims, higher payouts, and higher legal fees on every case = higher premiums = growth in float. More expenses are actually a GOOD thing, as long as they're adequately underwritten. One of the tough things right now is that used car values are going up in an unprecedented fashion, so property damage losses are coming in higher than expected. With inflation, there will likely also be inflation in pain and suffering awards which can cause a short term hit to underwriting results, but also should result in higher premiums and more float on a long term outlook. 

[Cigarbutt]

9 hours ago, Spekulatius said:

Yep, imaging doing this and having an “accident”. No worries, this why you have auto insurance:

Funny.

The topic is social inflation (already mentioned by Mr. Buffett in 1977) and is worth pursuing here?

RedLion is right vs a BRK investment and social inflation: unless unexpected, insurance subs simply have to adapt.

-----

Still.

To make a link from video above to social inflation, there's been developing case law for wrongful pregnancies ie getting pregnant as a result of another party's negligence. Social inflation has two components (opinion): a normal evolution according to social norms and an unproductive aspect. For 'normal' children, it's been established that compensation should not be considered although recently there have been signs (raising children can be expensive propositions well above government 'benefits') that a certain degree of court openness is on the way. For children with disabilities or special needs however, there's been legal developments in favor of larger payouts, which kinda makes sense (opinion). The problem however is when Geico may be on the hook for back seat love action.

-----

Here's an Geico example which does not even cover the potential underlying material absence of objective correlation between the real physical impairment and 'damages'.

GEICO Must Pay $2.7M to Settle Claim After Rejecting $30,000 Payout (carriermanagement.com)

Geico has produced poor underwriting results for some time and there are many factors apart from social inflation but they will eventually 'benefit' from inflated loss ratios as they remain well positioned to pass through cost increases, eventually.

Underlying Q4'21 underwriting results rank among GEICO's worst this century | S&P Global Market Intelligence (spglobal.com)

-----

Still.

To make money, companies need a fairly predictable landscape and a solid rule-of-law framework. Also, the driving forces behind the social inflation (gaining speed in the last 10 years) include widening inequality, spreading resentment and well entrenched anti-establishment (including big business) sentiment. Courts' decisions, even if often grotesque in appearance, are more a symptom than a disease.

-----

Back to BRK financial news.

[Spekulatius]

AC erst ing inflation cant be good for insurance companies writing a long tail insurance. I would  think that any underwriting assumes a certain inflation rates for the claims to be paid in the future.

One measure I quickly look at when looking at an is ursnce co and the “length of the tail “ is to calculate  the reserve to premium ratio. I think property insurers have a ratio of reserves /premiums of about 3 typically, which implies a 3 year tail (it takes 3 years to lay a claim on average). So you have exposure to 3 years if inflation. now if you underwrite with the assumption that we see 2% inflation in the next 3 years, but inflation is really 8% for threes years, well thats a 18% delta in payout.

 

This get much more fun , if you think about long term care insurance, which had already underwriting issues before that and now get hit with an additional dash of inflation. Haven’t seen much issues yet, but I sure would not want to have exposure to this sector right now.

 

I admit the above is all a simpletons view and there much more nuance to it.

[StevieV]

15 hours ago, RedLion said:

 

So I work in this field, and the deal is that insurance is a contractual arrangement. Most, if not all states, have an implied warranty of good faith and fair dealing implicit in every contract (insurance or otherwise). A lawsuit can be brought for "bad faith" or breach of the warranty of good faith and fair dealing, and the damages for bad faith are not limited to the contractual limits set in the first place. 

 

So if an insurance company has an underinsured/uninsured motorist coverage for $100k, you're rear ended by an uninsured motorist and suffer severe injuries, medical treatment, physical therapy, out of work, in severe pain, miss a family vacation to Portugal, etc. etc. and then your insurance company refuses to pay out your policy limits, and offers a $50k. Then you go to arbitration, and your damages come in at $300k. This would be a good case for a bad faith lawsuit, and damages can include the attorney's fees for arbitration, emotional distress related to your insurance company negotiating in bad faith, and even punitive damages. 

 

Your insurance company never has to accept an outrageous settlement offer. If they offer $90,000, and the arbitration comes back at $95,000 or $101,000, it's unlikely that a bad faith lawsuit would make it very far IMHO. 

 

So these issues do make insurance a tough business, but they're also all baked into the underwriting. So the more insurance claims, higher payouts, and higher legal fees on every case = higher premiums = growth in float. More expenses are actually a GOOD thing, as long as they're adequately underwritten. One of the tough things right now is that used car values are going up in an unprecedented fashion, so property damage losses are coming in higher than expected. With inflation, there will likely also be inflation in pain and suffering awards which can cause a short term hit to underwriting results, but also should result in higher premiums and more float on a long term outlook. 

 

From the article:

 

"The insurance company denied her claim, but when the woman pressed the issue, the company and the woman agreed to approach an arbitrator to resolve the matter.

 

The arbitrator decided in the woman's favor, awarding her $5.2 million last year."

 

This is the wild part.  Hard to imagine what the policy could say that could support that decision.  Just imagine the homeowners insurance claims.

[Cigarbutt]

2 hours ago, Spekulatius said:

AC erst ing inflation cant be good for insurance companies writing a long tail insurance. I would  think that any underwriting assumes a certain inflation rates for the claims to be paid in the future...

I admit the above is all a simpletons view and there much more nuance to it.

Your view is appreciated as you tend to be mostly right on most topics most of the time, a perspective which complements my tendency to be mostly wrong on most topics most of the time.

But i would bring some nuance to the above (rising inflation and negative P+C insurers' profitability). 

Disclosure: this is not an endorsement about sustainable inflation at this point; back on topic---)

 

Rising inflation will tend to mean rising yields and, typically insurers invest in safe fixed income, so, with a lag perhaps, investment returns from float will tend to at least partially mitigate poorer underwriting results from inflation, especially since most insurers tend to practice duration matching (payout curves with fixed income maturities) and tend to hold fixed income to maturity. But insurers will hurt with lasting inflation as the underwriting side may take time to catch up.

 

A lot has been said about the inflation in the 70s, how insurers fared badly and how Mr. Buffett allocated poor results to 'inflation'.

This shows investment returns for insurers which tended to rise with fixed income yields (return on common stocks was more variable but is blunted in the total portfolio return curve; Berkshire was again an outlier with higher common stock allocation and wildly positive excess returns on that part of the float portfolio). 

This shows the underwriting returns for insurers which don't reflect adequate poor investment return but more poor underwriting not mitigated by higher investment returns.

Again, the threat of an adverse event like inflation has negative implications but could correspond to an opportunity ie buying Geico in the late 70s when inflated reserve payments seemed to overcome Geico's intrinsic capacity to pay for them with a declining premium base..

 

[RedLion]

24 minutes ago, StevieV said:

 

From the article:

 

"The insurance company denied her claim, but when the woman pressed the issue, the company and the woman agreed to approach an arbitrator to resolve the matter.

 

The arbitrator decided in the woman's favor, awarding her $5.2 million last year."

 

This is the wild part.  Hard to imagine what the policy could say that could support that decision.  Just imagine the homeowners insurance claims.

 

Agreed that this is a wild outcome. I bet the plaintiff's lawyer bought a vacation house in one of JOE's developments with his fee. 

[aws]

I wonder if they had the same attorney as in this case, which the appeals court relied upon when denying Geico's appeal.

 

https://casetext.com/case/knight-v-knight-134

 

I only skimmed it, but my reading was:

 

Grandson sues grandparents for injury on a jet-ski, saying the grandparents neglected to supervise him

 

State farm denied coverage since it the activity was excluded under the policy

 

The parties agree to arbitration, in which the grandparents will agree not to offer any defense, agree not to challenge any award, and the grandson agrees to seek recovery only from the insurance policy and not from grandparents personally 

 

State Farm is not allowed to intervene as they are not a party to the lawsuit (despite being the only one who would ever have to pay out an award)

 

 

 

Basically it seems like collusion between the parties which burdens in insurer with an unlimited bill that they cannot challenge. So that once the door has been opened that the insurer acted in bad faith by declining to defend the insured, they are automatically bound to anything that happens after that point, even if the parties conspire to act in such a way to maximize the judgment and minimize any chance of later defense.

 

[DooDiligence]

15 hours ago, aws said:

I wonder if they had the same attorney as in this case, which the appeals court relied upon when denying Geico's appeal.

 

https://casetext.com/case/knight-v-knight-134

 

I only skimmed it, but my reading was:

 

Grandson sues grandparents for injury on a jet-ski, saying the grandparents neglected to supervise him

 

State farm denied coverage since it the activity was excluded under the policy

 

The parties agree to arbitration, in which the grandparents will agree not to offer any defense, agree not to challenge any award, and the grandson agrees to seek recovery only from the insurance policy and not from grandparents personally 

 

State Farm is not allowed to intervene as they are not a party to the lawsuit (despite being the only one who would ever have to pay out an award)

 

 

 

Basically it seems like collusion between the parties which burdens in insurer with an unlimited bill that they cannot challenge. So that once the door has been opened that the insurer acted in bad faith by declining to defend the insured, they are automatically bound to anything that happens after that point, even if the parties conspire to act in such a way to maximize the judgment and minimize any chance of later defense.

 

 

Why didn't he sue the intoxicated individual who rear ended him?

 

"While Collin was operating his own Jet Ski, his intoxicated relative struck Collin's Jet Ski from the rear. Collin was seriously injured in the accident."

Edited June 12, 2022 by DooDiligence

[Spekulatius]

6 hours ago, DooDiligence said:

 

Why didn't he sue the intoxicated individual who rear ended him?

 

"While Collin was operating his own Jet Ski, his intoxicated relative struck Collin's Jet Ski from the rear. Collin was seriously injured in the accident."

Because his then intoxicated relative likely doesn’t have any money. As the insurance Bible says “Thee who can pay, get slapped with a lawsuit!”

[woodstove]

gfp - Thanks for that video link re Pilot and Diesel, DEF, Ethanol transport issues with strange Union Pacific actions.  I did not know before.  It seems outrageous, terrible mis-management at U.P. 

 

One thing I do like, I think this gentleman as CEO of Pilot is excellent manager, and I am happy he is on Berkshire team. 

 

[wabuffo]

Based on Buffett's 13D related to his annual charitable giving, we can infer BRK's up-to-the-minute share count.

 

https://sec.gov/Archives/edgar/data/0001067983/000119312522174841/d352507dsc13da.htm

 

After pausing in April when the B-shares went above $350 per share, at recent prices, looks like 4.2m B-equivalent shares were repurchased.

 

 

Bill

[gfp]

Bill, maybe you can answer this question for me...  Why has the outstanding share count of the A-shares only declined by 1,365 A-shares since April when the press release by Buffett says he - just that day - converted 9,608 of his A-shares into B-shares.  As we all know, the shares are only convertible one-way.

 

https://berkshirehathaway.com/news/jun1422.pdf

 

 

edit: I should note I am not doubting your math - I get the same share count as you for A-shares when I use 37.4% being his remaining 229,016 shares and I get the same figures as you for total share count using 15.6% total economic interest in Berkshire.

Edited June 15, 2022 by gfp

[wabuffo]

No idea.  Maybe the ownership stake percentages are pre-conversion by Buffett.  I use the 15.6% to calculate the total B-share equivalents which wouldn't matter whether its pre- or post-conversion.

 

Also of note is that the 15.6% could be anywhere from 15.57% (zero reduction) to 15.64% (9.9m share reduction).

 

We really don't know the exact share count - but the good news is that the repurchases have been activated again. I hope Buffett is really firing the big gun at current prices.

 

Bill

[ValueMaven]

Awesome.  Thank you !! @wabuffo

[Parsad]

8 hours ago, wabuffo said:

Based on Buffett's 13D related to his annual charitable giving, we can infer BRK's up-to-the-minute share count.

 

https://sec.gov/Archives/edgar/data/0001067983/000119312522174841/d352507dsc13da.htm

 

After pausing in April when the B-shares went above $350 per share, at recent prices, looks like 4.2m B-equivalent shares were repurchased.

 

 

Bill

 

Bill, do you know what is the total amount Buffett has donated to non-profit organizations to date, since he started giving shares to the Gates Foundation?  Cheers!

[Lemsip]

3 hours ago, Parsad said:

 

Bill, do you know what is the total amount Buffett has donated to non-profit organizations to date, since he started giving shares to the Gates Foundation?  Cheers!

In his letter published last year the figure he quoted was $41b.  This year's contribution is around $4b at current prices so the total donated should be around $45b.

 

https://berkshirehathaway.com/donate/jun2321.pdf 

Edited June 16, 2022 by Lemsip

[aws]

On 5/21/2021 at 9:50 AM, sleepydragon said:

What happened to the “mystery ” buyer of BRK A ?

Some possibilities:  this “buyer” may actually had a large short  position in A or B and was covering( maybe a quant fund that had an algo bug that traded A shares regardless of the ADV). Or it could be a personal investor (very unlikely). Or someone who bought A shares and sold soon after?

 

This goes back a ways but some may find it interesting. I think I solved the mystery of the A share buyer today. The answer is that fractional share purchases hit the tape as a whole share. So if someone buys $20 worth of fractional A shares (1/20000th of a share) it still hits the tape as a full share purchase.

 

See this explanation on FINRA's website:

 

Share Quantity

Q101.14: How should a trade for a fractional number of shares, for example, 100.5 shares, be reported?

A101.14: When reporting a trade for a fractional number of shares, firms should delete the fraction and report the whole number, except if the whole number would be 0 (zero). If the whole number would be 0, firms should round up to 1. Thus, for example, for a trade of 100.5 shares, the reported quantity would be 100. Trade reports with a share quantity containing a decimal or a fraction will be rejected. (See also, e.g., OATS FAQ T69.)

Q101.15: Must trades for less than one share be reported?

A101.15: Yes. As noted in FAQ 101.14, where a trade is executed for less than one share, e.g., 1/3 share, firms should round up and report a share quantity of 1.

 

 

I tested this, and I bought about $20 worth of A shares on Robinhood and repeated it as quickly as I could, getting about 20 such orders in. I then checked the tape and each one of these came across as a full share order. So really, there likely has been no increase in the volume of A share traded, but rather it just reflects brokers beginning to offer fractional share purchases.

 

 

[Parsad]

11 hours ago, Lemsip said:

In his letter published last year the figure he quoted was $41b.  This year's contribution is around $4b at current prices so the total donated should be around $45b.

 

https://berkshirehathaway.com/donate/jun2321.pdf 

 

Thanks Lemsip!  Cheers!

[yesman182]

5 hours ago, aws said:

 

This goes back a ways but some may find it interesting. I think I solved the mystery of the A share buyer today. The answer is that fractional share purchases hit the tape as a whole share. So if someone buys $20 worth of fractional A shares (1/20000th of a share) it still hits the tape as a full share purchase.

 

See this explanation on FINRA's website:

 

Share Quantity

Q101.14: How should a trade for a fractional number of shares, for example, 100.5 shares, be reported?

A101.14: When reporting a trade for a fractional number of shares, firms should delete the fraction and report the whole number, except if the whole number would be 0 (zero). If the whole number would be 0, firms should round up to 1. Thus, for example, for a trade of 100.5 shares, the reported quantity would be 100. Trade reports with a share quantity containing a decimal or a fraction will be rejected. (See also, e.g., OATS FAQ T69.)

Q101.15: Must trades for less than one share be reported?

A101.15: Yes. As noted in FAQ 101.14, where a trade is executed for less than one share, e.g., 1/3 share, firms should round up and report a share quantity of 1.

 

 

I tested this, and I bought about $20 worth of A shares on Robinhood and repeated it as quickly as I could, getting about 20 such orders in. I then checked the tape and each one of these came across as a full share order. So really, there likely has been no increase in the volume of A share traded, but rather it just reflects brokers beginning to offer fractional share purchases.

 

 

Thanks for posting this. It still seems like a drastic jump whenever it started, back in January? 

[aws]

I think the fractional purchases mostly became available in 2020 at a variety of brokers, just in time for the retail mania that started in Jan 2021. Likely many saw the novelty of buying small pieces of such a high value stock and could setup the trades to recur automatically so the high volume would continue over time.

 

That's not to say there wasn't also an increase in full A share trading, but looking at volume alone is meaningless when a $1 fractional trade shows up on the tape exactly like a 400k trade.

Edited June 17, 2022 by aws

[sleepydragon]