Berkshire Hathaway’s operating profit from its businesses fell 4.8% in the first quarter as its insurance subsidiaries swung to an underwriting loss, offsetting gains by its railroad and utilities.
Warren Buffett’s conglomerate had operating earnings of $3.56 billion, or $2,163 per Class A share, for the quarter compared with $3.74 billion, or $2,274 per share, a year earlier.
First-quarter net income, which includes investment results as well as operating profits, totaled $4.06 billion, or $2,469 per share, compared with $5.59 billion, or $3,401 per share, in the first quarter of 2016. Analysts had expected operating earnings — the metric that Buffett encourages investors to follow — to increase to about $4.4 billion.
Berkshire’s insurers generated an after-tax loss of $267 million from underwriting in the first quarter due primarily to increased loss estimates for prior years’ loss events, higher losses from current year catastrophe events, and increased deferred charge amortization related to its property and casualty reinsurance businesses.
“Berkshire Hathaway’s insurers are known for the consistency with which they generate an underwriting profit, earning more in premiums than the payout in losses and expenses,” The Motley Fool noted. “But earnings over single calendar quarters can be volatile, particularly for Berkshire’s reinsurance subsidiaries.”
Geico and BH Primary Group both posted an underwriting profit but BH Reinsurance Group and General Re recorded losses of $600 million and $143 million, respectively, resulting in a $379 million pre-tax loss from underwriting across Berkshire’s insurance businesses.
As the Omaha World-Herald reports, Buffett has said the company is reducing its insurance operations because the premiums being paid for insurance risks are too low.
Berkshire’s BNSF railroad, however, bounced back, reported that its pre-tax earnings grew 7% year over year, helped by a 6.4% increase in volume and a 2.7% increase in revenue per car. Commodity-related shipments grew at the fastest pace, thanks to higher coal, natural gas, and oil prices.
Pre-tax profits from manufacturing businesses were mostly flat year over year, while pre-tax profits from the energy segment grew 8%.