Big losses from three hurricanes and an earthquake in Mexico in the September quarter hit the results for Warren Buffett’s Berkshire Hathaway group and has put it on course to report its first annual insurance underwriting loss in 15 years.
Losses from insurance claims tied to Hurricanes Harvey, Irma and Maria and the quake in Mexico drove a 43% drop in third-quarter profit, the company reported early Saturday morning, Sydney time.
Berkshire said net income fell to $US4.07 billion, from $US7.2 billion in the September 2016 quarter (when it took a big one off profit from ending the financing of the Wrigley deal).
Operating profit, which excludes investment and derivative gains and losses and which Buffett says better reflects company performance, fell 29% to $US3.44 billion from $US4.85 billion.
Buffett’s companies generated revenue of US$60.53 billion in the quarter.
Berkshire said it incurred $US3 billion of underwriting losses attributable to the hurricanes and earthquake (or $US1.95 billion after tax).
Berkshire said it lost $US1.44 billion from insurance underwriting in the quarter, and $US1.73 billion in the nine months from January to September, meaning it could very well report its first full-year underwriting loss since 2002.
It had even reported a small underwriting profit in 2005, the year of Hurricanes Katrina, (which hit New Orleans) Wilma, Rita and Dennis. Berkshire reported $US3.4 billion in hurricane-related losses that year.
Berkshire’s accounts show that investment income from insurance operations rose 23% to $US1.04 billion in the quarter, helping to cushion the impact of the loss.
Berkshire’s share price fell on the day, but its up 15% so far this year, slightly faster than the 14.9% rise in the S&P 500 this year.
As well as the boost to investment income for the quarter, some of Berkshire’s other busses did well with a 2% profit gain at the BNSF railroad and 3% rise at Berkshire Hathaway Energy.
BNSF contributed $US1.04 billion to the company’s quarterly profit, up slightly from last year’s $US1.02 billion.
Berkshire recorded much lower investment gains this year with $US623 million in the quarter. That’s significantly lower than last year’s $US2.3 billion that was boosted by Wrigley paying Berkshire to repurchase preferred shares Buffett’s company held.
It is looking at another big profit from another investment – the $US3 billion of preferreds Berkshire took in the inverted takeover of Restaurant Brands International (RBI). RBI has given notice that it will redeem the preferred this quarter at 109% of the issue price (around December 12). That means another handy one off payment this quarter.
Berkshire bought nearly 40% of truck stop operator, Pilot Flying J in October, with plans to increase the stake to 80% in 2023. Berkshire also tried to buy Texas-based power-transmission company Oncor, for $US9 billion but was outbid from Sempra Energy with the help of New York vulture fund, Elliott Management.
Book value, Mr. Buffett’s preferred yardstick for measuring net worth, reached $US187,435 a Class A as of Sept. 30, up 8.9% over the first nine months of the year. Last year, Berkshire reported a 5.3% increase in book value for the first nine months of the year.
Berkshire’s Class A shares closed Friday at $US280,470.01, up 15% for the year.
And with GE holding an investor day on November 13, some US analysts are wondering if Berkshire might be positioning itself to buy a major business from the company – something in the area of medical technologies or renewable power technologies. That’s something to watch if you are a Buffett follower.
