Auto insurance

Warren Buffett’s Berkshire takes a beating on car insurance

(Bloomberg) – Warren Buffett, who has long reiterated his love for insurance companies, has taken a heavy hit to Berkshire Hathaway Inc.’s underwriting business as inflation continues to weigh on the company’s operating units.

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The conglomerate posted a loss of $962 million on insurance underwriting in the third quarter, the worst quarterly loss in a year. Auto insurer Geico was the hardest hit among its insurance businesses, with a pre-tax loss of $759 million. The unit hasn’t made a quarterly profit since the second quarter of last year.

Auto insurers have struggled to keep pace with high used car prices, worsening accident frequency and severity, and higher costs from medical claims and accident-related litigation. The insurance industry at large also had to deal with the aftermath of Hurricane Ian, which hit Southwest Florida in late September, causing billions of dollars in damage.

Claims frequency in the first nine months of this year was higher in all areas, Berkshire said, including property damage, personal injury and collision.

“Geico is definitely a pressure point to watch at Berkshire,” said CFRA Research analyst Cathy Seifert, noting that a measure of future earnings was weaker than levels reported by peers. “It looks like Geico is also losing market share.”

Toll of inflation

Still, Berkshire’s other operating units, which include the BNSF Railroad alongside utilities and energy operations, were otherwise profitable, although the railroad’s revenue was down from a year ago. , as rising inflation wreaked havoc on the Omaha, Nebraska-based company.

“While customer demand for products and services was relatively strong in 2022, demand began to weaken in the third quarter at some of our businesses,” Berkshire said in a regulatory filing. “We continue to be negatively impacted by rising costs for materials, freight, labor and other inputs.”

Overall operating profit reached $7.76 billion, a 20% increase over last year. The increase included $858 million in foreign exchange gains related to non-U.S. dollar-denominated debt, as well as a 17% gain in revenue from businesses that Berkshire owns between 20% and 50% equity.

“Overall, the companies are doing very well,” said Edward Jones analyst Jim Shanahan.

For the first time, Berkshire included Occidental Petroleum Corp. under the equity method after its stake in the company exceeded 20% earlier this year. Including the warrants, the conglomerate owns almost 30% of the oil company. The company said it would report results for that business with a one-quarter lag, with Berkshire’s share of Occidental’s earnings to be reported in earnings in the fourth quarter of 2022.

Berkshire also reported a net profit loss for the quarter of nearly $2.69 billion, due to a $10.4 billion hit to its investment portfolio as economic uncertainty rocked markets. markets.

The company repurchased $1.05 billion of shares during the period, matching the amount of approximately $1 billion repurchased in the previous three months. Buffett has increasingly turned to buybacks as a way to deploy cash when opportunities are otherwise scarce.

Berkshire’s cash hoard edged up to $109 billion as Buffett maintained his dry powder stash amid a market slowdown spurred by economic fears.

What Bloomberg Intelligence says:

“Warren Buffett used less cash than expected. Redemptions of $1 billion in Q3 were flat with Q2, but below the 2021 pace of about $7 billion per quarter.”

Matthew Palazola, Senior BI Industry Analyst

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