Profits Soar at Buffett’s Berkshire Hathaway, GEICO

By | November 6, 2006

With no major catastrophes in this year’s third quarter, billionaire investor Warren Buffett’s Berkshire Hathaway Inc. reported an almost fivefold increase in income from a year earlier when hurricanes Katrina, Rita and Wilma struck.

Berkshire earned $2.77 billion (euro2.17 billion), or $1,797 (euro1,408) per share, for the quarter ended Sept. 30, versus $586 million, or $381 per share, in the year-ago period, according to Berkshire’s news release last Friday.

The Omaha-based company, with holdings that include the GEICO insurance company, has posted strong results throughout the first nine months of the year with net earnings of $7.43 billion (euro5.82 billion), or $4,821 (euro3,778) per share. During the first three quarters of 2005, the company earned $3.4 billion, or $2,207 per share.

“Clearly, these are highly satisfactory three-month and nine-month earnings for Berkshire,” the company said in its release. “Just as clearly, our insurance business has benefited in a major way from the absence of catastrophe losses. This is due not to managerial brilliance but rather to good luck. Last year, conversely, we got clobbered by a spate of hurricanes, more of which we will surely see in the future.”

Officials at Berkshire, which is led by Buffett, typically do not comment on quarterly earnings reports. They did not return calls seeking comment Friday.

Buffett, the world’s second-richest man after Microsoft’s Bill Gates, is nicknamed the “Oracle of Omaha” for his shrewd investment choices.

Berkshire previously estimated its losses to hurricanes Katrina, Rita and Wilma at $3.4 billion (euro2.66 billion) with about $3 billion (euro2.35 billion) of those losses occurring during last year’s third quarter.

While some other insurers this year shied away from writing insurance policies on catastrophic events like hurricanes, Berkshire’s companies continued writing those policies, though at higher rates than in 2005.

And the 2006 hurricane season was milder than predicted.

Berkshire’s insurance group, which includes GEICO, reinsurance giant General Re and several other firms, reported pretax profits of $2.53 billion (euro1.98 billion) in the third quarter, compared to a pretax loss of $897 million in the year-ago period.

Berkshire said General Re subsidiary Cologne Re has been ordered by the German Federal Financial Supervisory Authority to produce certain documents, according to Berkshire’s Securities and Exchange Commission filing.

Reinsurance companies sell backup coverage to other insurers, spreading risk so the system can handle huge losses from major disasters. Cologne Re writes property, casualty, life and health reinsurance for Berkshire in international markets.

German authorities told Cologne Re on Oct. 24 that the company _ and possibly one or more senior executives _ was suspected of violating laws governing financial reinsurance agreements. Previously, Berkshire had said German authorities were scrutinizing some of Cologne Re’s reinsurance transactions with New York-based AIG.

Berkshire owns more than 60 companies including insurance, clothing, furniture, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola Co., Anheuser-Busch Cos. and Wells Fargo & Co.

The company’s revenue grew 23.5 percent over last year to $25.36 billion (euro19.87 billion) during the quarter. So far this year, Berkshire has brought in $72.31 billion (euro56.67 billion) revenue, up from $56.30 billion in 2005.

Berkshire had $42.25 billion (euro33.11 billion) cash on hand at the end of the quarter, up slightly from $42.07 billion at the end of the second quarter.

Class A shares of Berkshire stock climbed above $100,000 a share for the first time during the third quarter. On Friday, they gained $894 to close at $105,000 before the company released its earnings report.

Berkshire’s Class B shares gained $28 Friday to close at $3,501.


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