Catastrophe Insurance
Definition & Origin
Catastrophe insurance is a specialty of Berkshire’s insurance business - covering the risks of large-scale natural disasters such as earthquakes and hurricanes. Due to the huge amount of capital required, only a few insurance companies have the ability to underwrite the insurance, and Berkshire has become a major player due to its strong capital base.
Key Points
- High Volatility but Long-Term Benefits: Single catastrophe payouts may be huge, but long-term premium income exceeds payouts
- Capital Barriers: A large amount of capital is required, forming a natural barrier to competition.
- Ajit Jain’s Contribution: Development into Berkshire’s core insurance business under Ajit’s leadership
Related Concepts
- Float — Catastrophe insurance contributes significant float
- Underwriting Discipline — Catastrophe insurance especially requires discipline
Letters Mentioned
The discussion started in the 1990s and became a regular topic after Ajit Jain was added.