Global Business

Insurance Losses Hurt Berkshire Hathaway

For a second straight quarter, the insurance group dragged down the conglomerate's operating profit, though its BNSF railroad keeps rolling along.
Matthew HellerAugust 8, 2017

A second straight quarter of insurance-underwriting losses dragged down Berkshire Hathaway’s operating profit, offsetting gains at its Burlington Northern railroad and aerospace supplier Precision Castparts.

Warren Buffett’s conglomerate had operating earnings of $4.12 billion, or $2,505 per Class A share, for the quarter , down 11% from $4.61 billion, or $2,803 per share, a year earlier.

Second-quarter net income, which includes investment results as well as operating profits, fell to $4.26 billion, or $2,592 per Class A share, from $5 billion, or $3,042 per share, a year earlier. Analysts had expected operating earnings — the metric that Buffett encourages investors to follow — of about $2,791 per share.

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Berkshire’s insurers generated an after-tax loss of $22 million, narrower than the $267 million in the first three months of 2017 but a sharp turnaround from the profit a year earlier.

Geico, BH Primary Group, and General Re all posted underwriting profits but BH Reinsurance Group, which provides coverage for insurers worldwide and received unexpected claims related to hurricanes and earthquakes in 2016, reported a $400 million loss.

At Geico, underwriting profit of $119 million narrowed from a year earlier as bodily injury claims drove costs up more quickly than premiums.

On the more positive side, BNSF saw profit rise 24% to $958 million, helped by high single-digit percentage increases in freight revenue from consumer and industrial products, and double-digit increases from agricultural products and coal.

In Berkshire’s industrial products group, there were earnings increases at Precision Castparts Corp., which Buffett acquired in 2015, Lubrizol, and International Metalworking Companies, with PCC experiencing revenue increases in the first six months of 2017 from structural castings, airfoils and industrial gas turbine products, and from new business acquisitions.

Overall profit from manufacturing, service and retailing units rose 10% to $1.66 billion in the second quarter.

Berkshire’s cash hoard, meanwhile, continued to grow, reaching about $99.7 billion of cash and equivalents at the end of June. It also has large investments in Kraft Heinz, Wells Fargo, Apple, and Coca-Cola.