Warren Buffett’s Berkshire Hathaway Inc. posted second-quarter profit that missed analysts’ estimates because of higher claims costs at insurance units including Geico.
Net income dropped 37 percent to $4.01 billion, or $2,442 a share, from $6.4 billion, or $3,889, a year earlier, the Omaha, Nebraska-based company said Friday in a statement. Operating earnings, which exclude some investment results, were $2,367 a share, compared with the average $3,038 estimate of three analysts surveyed by Bloomberg.
Buffett, 84, built Berkshire over the past five decades into a sprawling operation that owns manufacturers, retailers, electric utilities and one of the largest U.S. railroads. While those operating businesses provide a steady stream of earnings, the company’s results can still fluctuate depending on the performance of investments and its core insurance operations.
“The property-and-casualty insurance industry certainly occasionally takes large hits,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business. “What matters is how you do over time.”
Berkshire’s insurance units posted a net underwriting loss of $38 million, compared with a gain of $411 million a year earlier, driven by lower profit at auto insurer Geico and a wider loss at the company’s namesake reinsurance operation, run by Ajit Jain.
Australia Storm
Geico contributed $53 million to earnings, compared with $393 million a year earlier because of an increase in the frequency and cost of claims. The company reiterated in a regulatory filing that it’s raising premiums to account for the higher losses.
Berkshire Hathaway Reinsurance Group’s loss widened to $411 million from $9 million on storm costs in Australia and foreign currency fluctuations.
The decline in net income was primarily driven by narrower investment gains. Berkshire’s profit soared to a record in last year’s second quarter as the company had a benefit of more than $2 billion from derivatives and investments.
The 2014 total included a one-time contribution from a share-and-asset swap with Graham Holdings Co., the former publisher of the Washington Post. In this year’s second quarter, the investment and derivative figure was $123 million.