Jain's Insurance Premiums

A story about how Ajit Jain, a key executive at Berkshire Hathaway, demonstrated brilliant insurance underwriting by collecting massive premiums for calculated hurricane risk.

"Charlie was telling me that Berkshire writes super catastrophe insurance - insurance against hurricanes, earthquakes and so on. Many years when people are looking for hurricane insurance in Florida, Ajit will look at the rates being offered and just take a pass.

What he did in 2023 is he wrote hurricane insurance on Berkshire's behalf with a maximum payout of $15 billion. The math works like this: Berkshire would pay out on a big catastrophe 3-5% of the total insured loss. For them to have a $15 billion payout, you would need an event with insured losses in Florida of $300 billion - beyond Andrew, beyond Katrina, beyond all of those.

The premium he collected to write that $15 billion policy was $5 billion. They might have paid out 3-400 million that year. And what Charlie said to me is Ajit's done this about 6 times, where he's picked the years to write this policy. In most years, the premium offered was $2 billion and he just took a pass. All the other insurers wrote that policy, but Berkshire took a pass."