Cyclone Debbie was an unlikely cause of the surprise first quarter fall in earnings for Warren Buffett’s Berkshire Hathaway group.
Berkshire on Friday reported a 27% in first-quarter profit, and said a loss from its insurance underwriting contributed to operating results that fell short of forecasts.
The company said first-quarter net income fell to $US4.06 billion from $US5.59 billion in the March quarter of 2016. Operating earnings for the quarter declined to $US3.56 billion from $US3.74 billion in the same quarter of last year.
Last year’s results, meanwhile, included a $US1.9 billion gain when Berkshire exchanged most of its Procter & Gamble Co (PG.N) stock for that company’s Duracell battery business, plus cash.
Berkshire said its insurance businesses swung to a $267 million underwriting loss from a year-earlier profit of $213 million.
It said this reflected higher losses from catastrophes in 2017, including an Australian cyclone in March, and unexpectedly high losses related to hurricanes and earthquakes in 2016.
Berkshire said Debbie cost its insurance business “approximately $US52 million of estimated losses” in the quarter. That would be from its quota share deal with IAG.
Berkshire said the loss also reflected the amortisation of deferred charges related to its January agreement to take on many long-term risks in American International Group Inc’s property and casualty insurance portfolio, in exchange for a $US10.2 billion upfront payment.
That payment helped push float, or the amount of insurance premiums collected before claims are paid and which help funds Berkshire’s growth, up to about $US105 billion from $US91 billion at the end of 2016.
Meanwhile, reports from the annual meeting in Omaha on the weekend say that Berkshire Hathaway is looking for ways to benefit from the lower corporate tax rate proposed by President Donald Trump,
He told shareholders the company had a “slight preference” for taking a tax loss on some of its investments in the first quarter, Buffett said, because it expects that such a loss would be less valuable to Berkshire in the future if taxes are lower. Berkshire said Friday that its first-quarter net earnings fell 27%, hurt by weaker investment gains.
Trump administration unveiled a plan last month to lower taxes on all businesses to 15%. Most of Berkshire’s revenue come from the US so it would expect a large benefit from lower taxes.
