Warren Buffett’s magic touch has gone on vacation for a spell. Berkshire Hathaway’s second quarter operating profit fell 18 percent. Much of the loss is attributed to deteriorating underwriting in its insurance operations, including GEICO and reinsurers General Re and National Indemnity. Second-quarter operating profit fell to $245 million, or $161 per share, from $299 million, or $197 per share.
Selected expectations from Berkshire Hathaway’s announcement include:
· Underwriting results at General Re, though very unsatisfactory, improved from the preceding quarter. Absent a mega-catastrophe, Berkshire expects this trend to continue.
· Underwriting results also improved from the preceding quarter at GEICO. Unit growth slowed with policies-in-force at June 30, 2000 up 18.0% from last year. This slowing is expected to continue, though premium growth should continue strong due to higher prices.
· National Indemnity’s reinsurance underwriting loss for the quarter includes about $50 million that stems from business that will generate significant amounts of “float” for many years.
· Berkshire’s consolidated “float” totaled approximately $25.8 billion at June 30, 2000, up approximately $500 million from year-end 1999. The annualized cost of float for the first half of 2000 was 5.4%, down slightly from 1999’s full year cost of 5.8%. It is anticipated that float will grow at a significantly greater rate during the remainder of 2000 and that, absent a mega-catastrophe, the cost is likely to decline further.
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