(Bloomberg) — Warren Buffett, who has lengthy reiterated his love for insurance coverage firms, took a painful hit on Berkshire Hathaway Inc.’s underwriting companies as inflation continues to weigh on the corporate’s working items.
The conglomerate reported a $962 million loss on insurance coverage underwriting within the third quarter, the worst quarterly loss in a yr. Auto-insurer Geico took the most important hit amongst its insurance coverage companies, with a pretax lack of $759 million. The unit hasn’t turned a quarterly revenue for the reason that second quarter final yr.
Auto insurers have struggled to maintain tempo with elevated used-car costs, worsening frequency and severity of accidents, and better prices tied to medical claims and litigation associated to accidents. The broader insurance coverage business has additionally needed to grapple with the aftermath of Hurricane Ian, which slammed into southwest Florida in late September inflicting billions of {dollars} in harm.
Claims frequencies within the first 9 months of this yr have been greater throughout the board, Berkshire stated, together with property harm, damage and collision.
“Geico is unquestionably a stress level to look at at Berkshire,” stated Cathy Seifert, an analyst with CFRA Analysis, noting {that a} measure of future income was weaker than ranges reported by friends. “It appears to be like like Geico is shedding market share as nicely.”
Inflation Toll
Nonetheless, Berkshire’s different working items, which embody railway BNSF alongside utilities and power operations, have been in any other case worthwhile, although income for railroad declined from final yr as rising inflation took its toll on the Omaha, Nebraska-based firm.
“Whereas buyer demand for services was comparatively good in 2022, demand started to weaken within the third quarter at sure of our companies,” Berkshire stated in a regulatory submitting. “We proceed to expertise the destructive results of upper supplies, freight, labor and different enter prices.”
Working earnings general clocked in at $7.76 billion, a 20% improve from final yr. The rise included $858 million in foreign-exchange good points tied to debt not denominated in US {dollars}, in addition to a 17% acquire in income from companies Berkshire owns between a 20% to 50% stake in.
“On stability, the companies are performing very nicely,” stated Jim Shanahan, an analyst with Edward Jones.
For the primary time, Berkshire included Occidental Petroleum Corp. below the fairness technique of accounting after its stake within the firm surpassed 20% earlier this yr. Together with warrants, the conglomerate owns virtually 30% of the oil agency. The corporate stated it is going to report outcomes from that enterprise on a one-quarter lag, with Berkshire’s share of Occidental earnings set to be reported in earnings within the fourth quarter of 2022.
Berkshire additionally reported a internet earnings loss for the quarter of virtually $2.69 billion, pushed by a $10.4 billion hit tied to its funding portfolio as financial uncertainty rattled markets.
The corporate repurchased $1.05 billion of shares within the interval, according to the roughly $1 billion purchased again within the prior three months. Buffett has more and more turned to buybacks as a means of deploying money when alternatives are in any other case sparse.
Berkshire’s money hoard elevated barely to $109 billion as Buffett maintained its stash of dry powder amid a market downturn spurred by financial fears.
What Bloomberg Intelligence says:
“Warren Buffett made much less use of money than we anticipated. Repurchases of $1 billion in 3Q have been flat with 2Q however under the 2021 tempo of about $7 billion 1 / 4.”
Matthew Palazola, BI Senior Trade Analyst
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