Question

What is reinsurance? How does it work? What are the advantages of Berkshire Hathaway’s reinsurance business? (using the 2017 Annual letter)

Answer 1

Reinsurance is a process of mitigation of the risk by the insurance company when the insurance company will be purchasing the insurance of other companies so they will be reinsuring their risk of payment to the insured persons and hence they will be trying to shift their liability to a large level in case of defaults and it will help the insurance company to deal with adverse situation and share the losses so that they can sustain.

Reinsurance work in elimination of risk to a large extent by sharing of risk with many of the insurance companies because insurance company will be buying out the insurance contract of other companies.

Advantages of Berkshire Hathway reinsurance business is that it is providing itself with a chance to take advantage of the growing reinsurance industry and it is trying to increase its overall premium and since the reinsurance businesses are growing this company is also eliminating the risk to the large extent and hence it can be said that this company is managing the reinsurance business effectively through high level of professionalism and better Risk Management services so it can be said that Berkshire Hathaway is efficiently utilising the operations related to the insurance and the advantages are core competitiveness and retention of employees along with elimination of risk to the largest possible extent.