Berkshire Hathaway Doubles Profit on Lower Catastrophe Losses

May 7, 2012

Berkshire Hathaway said it generated $3.245 billion in net income overall, up from last year’s net income of $1.511 billion last year in the quarter. Last year’s results were hurt by $1.1 billion in insurance losses from the Japanese earthquake and tsunami, Australian floods and the New Zealand earthquake.

Berkshire’s overall revenue grew 13 percent to $38.1 billion from last year’s $33.7 billion.

Berkshire owns about 80 companies, including clothing, furniture and jewelry interests and it has major investments in Coca-Cola and Wells Fargo. But its insurance and utility businesses typically account for more than half of the company’s net income.

Berkshire’s entire insurance division, which includes Geico and General Reinsurance, contributed $54 million to the profits, better than last year when the insurance firms suffered an overall $820 million loss.

Geico reported a $124 million underwriting gain, down from last year’s $337 million. Geico’s premiums earned in the first quarter of 2012 increased $341 million (9.3 percent) to $4,016 million. The growth in premiums earned for voluntary auto was 9.3 percent, as policies-in-force increased 6.5 percent during the past year. The increase in policies-in-force reflects a decrease of 2.7 percent in voluntary auto new business sales compared with the strong new business sales in the first quarter of 2011. Voluntary auto policies-in-force at March 31, 2012 were approximately 287,000 greater than at Dec. 31, 2011. In recent years, the growth in voluntary auto policies-in-force has been the greatest during the first quarter.

Geico’s losses and loss adjustment expenses incurred in the first quarter of 2012 were $2,933 million, an increase of $280 million (10.6 percent) versus the first quarter of 2011. The loss ratio was 73.0 percent in the first quarter of 2012 compared to 72.2 percent in 2011. The company said the increase in the loss ratio in the first quarter of 2012 reflected higher average injury and physical damage severities estimates. In the first quarter of 2012, bodily injury severities estimates generally increased in the one to two percent range over 2011, while physical damage severities increased in the six to nine percent range. Berkshire said Geico’s expenses grew as it began to comply with new accounting standards for certain policies and losses were slightly higher.

General Re reported an $81 million underwriting gain, whereas it lost $326 million on underwriting in last year’s first quarter. General Re’s property/casualty premiums earned in the first quarter of 2012 were $735 million, an increase of $20 million (2.8 percent) compared to 2011. Berkshire said that in a very competitive marketplace, its underwriters “continue to exercise discipline by not accepting offers to write business where prices are deemed inadequate.”

P/C reinsurance underwriting results in the first quarter of 2012 included underwriting gains of $66 million from property business, offset in part by underwriting losses of $20 million from casualty/workers’ compensation business. The property underwriting gains reflect an absence of significant catastrophe losses as well as underwriting gains from the run-off of prior years’ business.

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