This Disclosure is a supplementary note to the audited financial statements which are publicly available both on the website of the Monetary Authority of Singapore and from the Accounting and Corporate Regulatory Authority. This Disclosure, read in conjunction with the audited financial statements, is issued pursuant to MAS Notice 124 – Public Disclosure Requirements.

Company Profile

Berkshire Hathaway Specialty Insurance Company (“BHSIC”) is a Nebraska, United States-domiciled direct property and casualty insurer which maintains branch offices in the United States, Canada, Australia, New Zealand, Hong Kong and Singapore. BHSIC is a member of the National Indemnity Company group of insurance companies (the “NICO Group”).  BHSIC’s financial strength ratings are A++ from AM Best and AA+ from Standard & Poor’s. BHSIC’s ultimate parent is Berkshire Hathaway Incorporated (“BHI”), a holding company owning subsidiaries engaged in a number of diverse business activities throughout the globe (www.berkshirehathaway.com).

BHSIC-Singapore Branch received its license to conduct insurance business in Singapore in December 2014. Since then, the Branch has written direct insurance, assumed facultative reinsurance, and treaty reinsurance business.

On the non-treaty side, BHSIC-Singapore Branch writes insurance in the property, casualty, marine cargo, marine hull and liability, fire, motor, personal accident, health, public liability, bonds, engineering and professional indemnity lines of business. Business on the non-treaty side is sourced directly and through brokers and agents.

BHSIC-Singapore Branch plans to continue writing a significant amount of treaty business, and the business expansion will depend on market conditions and the degree of competition. BHSIC-Singapore Branch’s treaty reinsurance business is sourced primarily through brokers throughout Asia and secondarily, directly through cedants.

The underwriting strategy of the Branch is to:

1. Maintain a diverse spread of risk in its books of business across product lines and geographic zones;
2. manage its aggregate property catastrophe exposure through the application of sophisticated modeling tools;
3. monitor its exposures on non-property catastrophe coverage; and
4. adhere to underwriting guidelines across its business lines.

The Branch strives to diversify its reinsurance portfolio through the appropriate combination of business lines, ceding source, geography and contact configuration. Its primary customer focus is on highly-rated carriers with proven underwriting skills and dependable operating models.

Corporate Governance Framework

As a business unit of the NICO Group, BHSIC adopts the corporate governance framework of the NICO Group.

The ultimate responsibility for risk management in the NICO Group is shared between the President of NICO and the President of Berkshire Hathaway Reinsurance Group (“BHRG”), who have in turn delegated the management of risk within the business units that they do not manage on a daily basis to the President of each of these business units, including BHSIC. The Presidents are then responsible for implementation of an effective risk management framework within their business unit that is consistent with the NICO Group tone, risk appetite and risk strategy.

The NICO Group Enterprise Risk Management Committee (the “ERM Committee”) was established and charged with:

1. identifying and assessing the risks faced by the NICO Group;
2.  recommending and documenting risk appetite statements and associated risk tolerances and limits;
3. evaluating and monitoring the effectiveness of the risk controls implemented to manage the key identified risks; and
4. facilitating and reporting on the risk management processes for the benefit of the NICO Group Presidents and the boards of directors of the NICO Group insurance companies.

The role of Deputy Chief Risk Officer of the NICO Group (“Deputy CRO”) was established and reports to the Presidents of NICO and BHRG in their capacity as co-CROs of the NICO Group. The primary role of the Deputy CRO is to facilitate the work of the ERM Committee and assist the NICO Group Presidents in monitoring the effectiveness of their enterprise risk controls.

In recognition of the growing nature of cyber risk, the ERM Committee also established a subcommittee, the IT Risk Steering Committee, dedicated to the management of information technology and cyber risk.

This risk governance framework is supplemented by several key governance risk controls:

1. Each business unit within the NICO Group (including BHSIC-Singapore Branch) adopted BHI’s written code of business conduct and ethics that applies to all NICO Group companies. The BHI Code of Business Conduct and Ethics serves to:
   •  emphasize BHI’s commitment to ethics and compliance with the law;
   •  set forth the basic standards of ethical and legal behavior;
   •  provide reporting mechanisms for known or suspected ethical or legal violations; and
   •  help prevent and detect wrong doing.
2. Each NICO Group business unit has also adopted BHI’s Prohibited Business Practices Policy. The policy is provided to all employees, is posted on the bulletin boards at various offices and available via company intranet sites.
3.  An Employee Handbook sets forth the principles and rules each employee is expected to follow.
4.  An Information Security Policy instructs staff not to disclose sensitive proprietary, commercial, contractual, investor or staff related information to third parties, including friends and relatives, who do not have a need to know the information in order to meet their professional responsibilities.
5. BHI has established a process (for all BHI subsidiaries including BHSIC-Singapore Branch) that enables employees to report concerns anonymously through an independent third-party organization. All employees are provided information at least annually about how to access the third-party hotline 24 hours a day, seven days a week. Each report is taken seriously and treated confidentially.

Enterprise Risk Management Framework

BHSIC-Singapore Branch’s strategy with respect to risk management has been to adopt a risk management framework that is consistent with the broader BHSIC objectives but is appropriately scaled for the risks faced by the Branch. The Branch adopts the risk management framework of BHSIC, which is then modified and enhanced where necessary to meet local requirements. BHSIC-Singapore Branch adopts an approach whereby risk identification and the management of risk is incorporated as part of the business planning process which is incorporated into the day-to-day business processes and systems.

BHSIC-Singapore Branch has adopted a common risk appetite definition which aligns with that of BHI, as described in the 2010 BHI financial statements:

“…. A sound insurance operation requires four disciplines:

1. An understanding of all exposures that might cause a policy to incur losses;
2. A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does;
3. The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and
4. The willingness to walk away if the appropriate premium can’t be obtained.”

BHSIC-Singapore Branch has a low appetite for risk, and it considers that its controls for each category of risk to be effective and strong. More specifically, BHSIC-Singapore Branch manages its financial risks through the significant reinsurance support provided by the highly capitalised parent company, NICO, and the operational risk is managed through strong monitoring of the activities of its service providers.

Through the NICO Group’s Own Risk and Solvency Assessment (ORSA) process, BHSIC assessed risks, documented risk mitigation measures and set escalation levels for each identified risk. The NICO Group prioritized risk into three areas based on both severity of impact to the NICO Group and likelihood of occurrence: red (high), yellow (medium) and green (low). These measures together also encapsulate BHSIC’s, and by extension, BHSIC-Singapore Branch’s, risk tolerance. BHSIC deems any level of risk below the stated escalation level to be within its risk tolerance. The escalation process is further detailed in the NICO Group ORSA, Section I: Risk Management Framework, Risk Appetite and Risk Tolerance Limits.

ENVIRONMENTAL RISK MANAGEMENT DISCLOSURE

BHSIC’s responses to the National Association of Insurance Commissioners (NAIC) 2020 Climate Risk Disclosure Survey are available here.