Warren Buffett's Berkshire beats auto insurance

(Bloomberg) — Warren Buffett, who has long reiterated his love for insurance companies, has dealt a painful blow to Berkshire Hathaway Inc.’s insurance business as inflation continues to weigh on the company’s operating units.

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The conglomerate reported a $962 million loss on insurance underwriting in the third quarter, its worst quarterly loss in a year. Auto insurer Geico took the biggest hit among its insurance businesses, with a pretax loss of $759 million. The division has not made a quarterly profit since the second quarter of last year.

Auto insurers are struggling to keep pace with increased used car prices, worsening accident frequency and severity, and higher costs associated with accident-related medical claims and litigation. The broader insurance industry has also had to contend with the aftermath of Hurricane Ian, which slammed into southwest Florida in late September, causing billions of dollars in damage.

Claim rates in the first nine months of this year were higher across the board, Berkshire said, including property damage, personal injury and collisions.

“Geico is definitely a pressure point to watch in Berkshire,” said Kathy Seifert, an analyst at CFRA Research, noting that the measure of future earnings was weaker than the levels reported by peers. “Geico also appears to be losing market share.”

Inflation fee

Still, Berkshire’s other operating units, which include BNSF rail along with utilities and energy operations, were otherwise profitable, although revenue for the railroad declined from last year as rising inflation weighed on the Omaha, Neb.-based company.

“While customer demand for products and services was relatively good in 2022, demand began to weaken in the third quarter in some of our businesses,” Berkshire said in a regulatory filing. “We continue to experience the negative effects of higher costs for materials, freight, labor and other inputs.”

Total operating profits were $7.76 billion, a 20% increase over last year. The increase included $858 million in foreign exchange gains related to non-US dollar-denominated debt, as well as a 17 percent increase in revenue from businesses in which Berkshire owns between 20 percent and 50 percent.

“Overall, the business is performing very well,” said Jim Shanahan, an analyst at Edward Jones.

For the first time, Berkshire included Occidental Petroleum Corp. under the equity method of accounting after his 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 will report results from that business one quarter late, with Berkshire’s share of Occidental’s revenue reported in earnings in the fourth quarter of 2022.

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

The company bought back $1.05 billion in shares during the period, in line with about $1 billion bought back in the previous three months. Buffett has increasingly turned to buybacks as a way to deploy cash when options are otherwise scarce.

Berkshire’s cash holdings rose slightly to $109 billion as Buffett held on to the dry powder stock amid a market slide fueled by economic fears.

(Updates with analyst commentary and results details beginning in the fifth paragraph.)

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