TBO.com - TBO is Tampa Bay Online

Buffett Company Profits Dive 64%

ADVERTISEMENT

Bloomberg News

Published: May 3, 2008

Billionaire Warren Buffett's Berkshire Hathaway said first-quarter profits declined 64 percent as falling rates reduced returns from insurance operations. The company had $991 million in investment losses as it marked down the value of derivative contracts.

Net income decreased to $940 million, or $607 a share, from $2.6 billion, or $1,682, a year earlier, the Omaha, Neb.-based company said Friday.

Operating earnings, which exclude investment losses, were $1,247 a share, lagging behind the $1,430 average estimate of three analysts compiled by Bloomberg.

Buffett is looking to acquire businesses in Europe and is adding to holdings of consumer-products companies as competition forces down insurance rates in the United States. Berkshire, which owns National Indemnity, General Re Corp. and Geico Corp., typically gets about half its profit from insurance.

"We've had historically profitable years for the industry in 2004 through 2007, so companies are willing to deal on pricing and give up underwriting profit to maintain market share," said Charles Hamilton, an analyst at FTN Midwest Securities Corp. "In this ultracompetitive marketplace, it's very difficult for Berkshire to grow earnings on insurance operations."

Profit from underwriting insurance policies fell 70 percent to $181 million.

Most companies in the KBW Insurance Index have reported declines in first-quarter profit on the falling value of fixed- income investments, dropping rates for commercial coverage, and higher costs from auto accidents.

Business insurance prices in the United States fell 14 percent in the first quarter from the same period a year earlier, a Council of Insurance Agents and Brokers survey found.

Rates for catastrophe protection are falling industrywide after successive hurricane seasons left the United States untouched by major storms. Buffett scaled back coverage last year after stepping up sales in 2006 when prices doubled and tripled after Hurricane Katrina's devastation in 2005.

"It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008," Buffett wrote in his annual letter to shareholders in February.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT