APRIL 30, 2011, 3:48 P.M. ET
Berkshire Hathaway Earnings Fall as Disasters Weigh on Insurance Units
By ERIK HOLM, wsj.com
First-quarter profit at Warren Buffett's Berkshire Hathaway Inc. fell 58% to $1.51 billion, driven by investment losses and costly disasters that hurt the company's insurance operations.
Operating earnings, which exclude some investment results, fell 28% to $1.59 billion, Buffett said at the company's annual meeting in Omaha, Neb. on Saturday. The figures are preliminary, with final results to be released in coming days.
The insurance operations had an underwriting loss of $821 million in the quarter, compared with a gain of $226 million a year earlier. The loss was a result of massive earthquakes in Japan and New Zealand and storms in Australia, which combined to produce $1.67 billion in catastrophe losses.
Mr. Buffett, addressing shareholders at the start of the meeting, said the first-quarter result meant it was unlikely Berkshire would have an underwriting profit for the full year.
Almost half the disaster costs were from an agreement Berkshire has to share 20% of the profits and losses from the property-casualty business of Swiss Reinsurance Co. Mr. Buffett said the Swiss Re agreement was unlikely to continue when it expires in coming years.
Berkshire's insurance operations provide Mr. Buffett with premiums he can invest immediately until the money is needed to pay claims months or years in the future. In the first quarter, investment income from the funds held at the insurance operations fell 3.6% to $952 million.
During the financial crisis, Mr. Buffett used money from the insurance operations to make highly profitable bets on companies including Goldman Sachs Group Inc. and General Electric Co., but those investments are rolling off--and Mr. Buffett warned that investment income would suffer as a result.
Profit at Berkshire's collection of manufacturing, service and retailing operations rose 17% to $558 million, buoyed by improving economic conditions. The increase comes on top of the 85% rise in those operations' results in last year's first quarter, as the company and the economy were picking themselves up off the floor after the recession and financial crisis.
"Pretty much all of our businesses, with the exception of those related to residential housing, are getting better," Buffett said. "We are a cross-section of not only the American economy, but to some extent we see a fair amount of what's happening internationally."
Berkshire's 70-plus businesses include outfits that make underwear and kitchen knives, sell jewelry and furniture, and manufacture machine parts and tools. The company leases furniture, tractor-trailers and jets.
The company's regulated businesses, the segment that includes recently acquired railroad Burlington Northern Santa Fe and the MidAmerican power company, saw profit rise 80% to $908 million. Part of the improvement came because Berkshire owned Burlington for all of this year's first quarter, versus just part of last year's.
Berkshire also saw investment and derivative gains and losses reverse to a $82 million net loss compared with last year's gain of $1.41 billion. Mr. Buffett has urged shareholders to look past that line item, which can fluctuate wildly from quarter to quarter, and instead examine operating results to measure the company's financial accomplishments.
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