Insurance units push up Berkshire’s profit

Noah Buhayar and Zachary Tracer New York

Berkshire Hathaway’s fourth-quarter profit rose 9.6 percent on gains at insurance units, Warren Buffett’s company said at the weekend.

Chairman and chief executive Warren Buffett said that everything turned out well for Berkshire Hathaway last year. File photo: Bloomberg. Credit: Bloomberg

Net income climbed to $4.99 billion (R53.6bn), or $3 035 a share, from $4.55bn, or $2 757, a year earlier, Berkshire said. Operating earnings were $2 297 a share, beating the $2 204 average estimate of three analysts surveyed by Bloomberg.

For decades, Buffett has used premiums from insurance subsidiaries such as Geico to fuel Berkshire’s growth. The funds have allowed the billionaire chairman and chief executive to amass the largest equity stakes in companies such as Coca-Cola, while also taking over whole businesses. Berkshire now has dozens of operating units spanning the energy, transportation, manufacturing and retail industries.

“All the businesses are doing pretty well,” Nomura analyst Cliff Gallant said before the announcement. “They’re all leveraged to a good US economy.”

The insurance segment posted a quarterly underwriting profit of $394 million, compared with a loss of $19m a year earlier. The premiums held by those businesses before paying claims was little changed from the end of September at about $77bn. The fourth quarter of 2012 included claims from superstorm Sandy, which hit the US East Coast.

For the full year, Berkshire’s profit was $19.5bn, eclipsing the 2012 record annual profit of $14.8bn. Buffett’s cash hoard was $48.2bn on December 31, compared with $42.1bn at the end of September last year.

“On the operating front, just about everything turned out well for us last year,” Buffett wrote in a letter to shareholders.

Burlington Northern Santa Fe railroad, which Buffett bought in 2010, contributed $1.12bn to quarterly earnings, compared with $932m a year earlier. Energy utility owner MidAmerican added $325m to Berkshire’s profit, compared with $294m a year earlier.

Buffett counts the railroad and energy company among his “powerhouse five” of non-insurance businesses. The group, which also includes manufacturing units, posted $10.8bn in pretax earnings last year. That figure would probably increase by about $1bn this year, Buffett said.

Book value, a measure of assets minus liabilities, rose in the quarter to $134 973 a share from $126 766 at the end of September, falling short of Buffett’s long-term goal. The billionaire has said he tried to increase the measure by more than the Standard & Poor’s 500 index including dividends.

He had managed that feat in every five-year period from 1965, when he took control of Berkshire, up to the end of 2012. The equity benchmark’s rally since the depths of the financial crisis helped put an end to that run. – Bloomberg