Even Buffett Can’t Escape Markets, Storms; Berkshire Profit Falls 77%

November 10, 2008

Warren Buffett’s Berkshire Hathaway Inc. said Friday third-quarter profit fell 77 percent, the fourth straight quarterly decline, hurt by weaker results from insurance underwriting and a big loss on derivatives contracts.

Net income for the Omaha, Nebraska-based insurance and investment company declined to $1.06 billion from $4.55 billion a year earlier.

Berkshire is a $175 billion conglomerate. In addition to insurance, it owns businesses in housing, energy, furniture, clothing and food.

Third quarter profit from insurance underwriting fell 83 percent to $81 million. This included about $1.05 billion of losses from Hurricanes Gustav and Ike.

Insurance investment income also fell– by about 12 percent to $809 million.

Earned premiums for GEICO, which primarily provides direct sales of private passenger automobile coverage, in 2008 exceeded amounts earned in 2007 by $151 million (5.0 percent) for the third quarter and $472 million (5.4 percent) for the first nine months. The growth in premiums earned for voluntary auto reflected an increase in policies-in-force of 7.2 percent partially offset by comparatively lower average premiums per policy, which have leveled off over the course of 2008.

Losses and loss adjustment expenses incurred in 2008 increased $261 million (12.5 percent) for the third quarter. Incurred losses from catastrophe events were $28 million for the third quarter compared to $14 million in the corresponding 2007 period.

Overall, the loss ratios in 2008 reflected an increase in average claim severities and lower average premiums per policy, partially offset by declines in claim frequencies, according to GEICO, which also said
that the loss ratio for the fourth quarter of 2008 will be higher than in 2007.

General Re
At General Re, which offers reinsurance in North America through General Reinsurance Corp. and internationally through Cologne Re, property/casualty premiums earned in the third quarter of 2008 declined $66 million (7.5 percent).

The company said premium volume will likely decline further over the
remainder of 2008 when compared with 2007, as non-renewals and policy cancellations are expected to exceed new business.

The property/casualty business produced an underwriting loss of $13 million in the third quarter compared to an underwriting gain of $117 million in the respective 2007 period. Property results included $186 million of catastrophe losses arising primarily from Hurricanes Ike and Gustav in the third quarter.

Source: Berkshire Hathaway

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