(Bloomberg) — Warren Buffett, who has long reiterated his love of insurance companies, has taken a toll on Berkshire Hathaway’s underwriting business as inflation continues to weigh on the company’s business units.
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The conglomerate reported an underwriting loss of $962 million in the third quarter. This is the worst quarterly loss in a year. Auto insurance company Geico was hit the hardest in its insurance business, 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 are struggling to keep up with rising used vehicle prices, rising accident frequency and severity, and rising costs associated with accident-related medical claims and litigation. The broader insurance industry also had to contend with the aftermath of Hurricane Ian, which slammed into southwestern Florida in late September and caused billions of dollars in damage.
Berkshire said the frequency of claims in the first nine months of the year was generally high for property damage, injuries and collisions.
“Geico is definitely a pressure point to watch for Berkshire,” said CFRA Research analyst Cathy Seifert, noting that future earnings measures were weaker than levels reported by peers. “Geico seems to be losing market share, too.”
Still, rising inflation hit the Omaha, Nebraska-based company while other Berkshire business units, including railroad BNSF in addition to utilities and energy, were otherwise profitable. As a result, earnings from the railway business declined from last year.
“Customer demand for products and services was relatively strong in 2022, but some businesses started to see demand weaken in the third quarter,” Berkshire said in a regulatory filing. “We continue to experience negative impacts from rising material, transportation, labor and other input costs.”
Operating income totaled $7.76 billion, up 20% from last year. The increase includes an $858 million foreign exchange gain related to non-US dollar-denominated debt and a 17% increase in earnings from businesses in which Berkshire owns a 20% to 50% stake.
“Overall, the business is doing very well,” said Edward Jones analyst Jim Shanahan.
Berkshire has included the equity method for the first time since its stake in Occidental Petroleum Corporation exceeded 20% earlier this year. Including warrants, the conglomerate owns almost 30% of the oil companies. The company said he will report the results of that business a quarter later, with Berkshire’s share of Occidental’s revenue expected to be reported in the fourth quarter of 2022.
Berkshire also reported a net loss of about $2.69 billion in the quarter due to a $10.4 billion hit related to its investment portfolio as economic uncertainty rocked markets.
The company repurchased $1.05 billion of stock during this period. This is in line with about $1 billion bought back in the last three months. Buffett is increasingly turning to share buybacks as a way to deploy cash when opportunities are otherwise sparse.
Berkshire’s cash holdings rose slightly to $109 billion as Buffett maintained a stash of dry powder amid a market downturn fueled by economic uncertainty.
Bloomberg Intelligence said:
“Warren Buffett used less cash than we expected. It’s under a billion dollars.”
Matthew Palazola, BI Senior Industry Analyst
(Adds comment from Bloomberg Intelligence analyst)
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