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Berkshire Hathaway 3Q Net Down 76.8% on Slumping Property/Casualty Underwriting, Investments
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| Copyright: | A.M. Best Company, Inc. | | Source: | BestWire Services | | Wordcount: | 384 |
Berkshire Hathaway Inc.''s third-quarter net income fell 76.8% on a sharp drop in underwriting income for its insurance operations and negative investment and derivatives results.
Third-quarter net income fell to 1.06 billion from $4.55 billion for Berkshire (NYSE: BRK-A). The group reported a $1.01 billion loss on investments and derivatives.
For the first nine months, Berkshire''s net income fell 52.5% to $4.9 billion.
Insurance underwriting income fell 83.3% to $81 million. Insurance investment income fell 12.3% to $809 million.
In its Form 10-Q filing with the U.S. Securities and Exchange Commission, Berkshire said its underwriting results were hurt by several factors. One is price competition, which the group said "has steadily increased over the past two years in most property and casualty markets."
Berkshire companies also recorded catastrophe losses of about $1.05 billion from hurricanes Ike and Gustav.
For auto insurer Geico, pretax underwriting profit fell 26.6% to $246 million. A increase in average claims severity and lower average premiums per policy were partly offset by declines in claim frequencies. Average injury and physical damage severities in 2008 rose in the range of 5% to 8% from the previous year. Underwriting expenses rose 3.5% in the first nine months, partly from a 10% increase in advertising and other policy acquisition costs.
General Reinsurance Corp. saw its pretax underwriting income fall 65.6% to $54 million in the third quarter. Life/health underwriting income rose to $67 million from $40 million. Property and casualty underwriting showed a $13 million loss, compared to income of $117 million a year earlier.
According to Berkshire, price competition put downward pressure on reinsurance rates in many property and casualty markets, Premium volume was down over the first nine months, and the group expects further downward pressure on volume for the rest of the year.
Losses over the first nine months included $186 million in catastrophe losses for property lines, mainly from hurricanes Ike and Gustav, and Windstorm Emma and hailstorms in Europe.
Casualty and workers'' compensation lines recorded net losses of $69 million. Contributing to this was $90 million of recurring workers'' comp reserve discount accretion and deferred charge amortization.
Berkshire added that casualty underwriting results in both 2008 and 2007 were hurt by legal costs related to regulatory investigations of finite reinsurance transactions.
(By David Pilla, international editor, BestWeek: David.Pilla@ambest.com)
This is a news service of Thomson Business Intelligence Service ©2006. This content is for your personal use only, subject to Terms and Conditions. No redistribution allowed.
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