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Berkshire Hathaway: Operating Income Up, Net Income Down

Source: Insurance Newsnet

Posted on 10 Aug 2010

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Industry giant Berkshire Hathaway Inc. reported a 40 percent drop in net income compared to the same period a year ago, even though the company posted a major gain in second-quarter operating income.

Operating income climbed 73% to $3.07 billion in the second quarter that was lifted by the acquisition of Burlington Northern Santa Fe Corp., which operates one of the largest railway systems in North America.

Acquiring the railroad company in February added $603 million in second quarter net earnings. Tempering gains from that acquisition was $1.41 billion in losses on derivatives.

The company's insurance operations reported a net underwriting gain of $462 million, up sevenfold from a year earlier. Leading that charge was Geico, the company's direct writer of automobile insurance. Geico posted an underwriting gain of $329 million, nearly three times what it had reported for the second quarter in 2009. Premiums earned increased 4.7% in the second quarter to $3.55 billion.

Berkshire Hathaway reported $63 million in 2010 catastrophe losses within the Geico segment, compared with $52 million in the first half of 2009.

General Reinsurance Corp.'s pretax underwriting gain of $222 million in the second quarter reflected a decline of nearly 20% from a year earlier. Gen Re generated $103 million pretax underwriting gain for the first half of the year, which was attributable to the casualty side of operations, according to Berkshire Hathaway's quarterly filing with the U.S. Securities and Exchange Commission.

Berkshire Hathaway said Gen Re's property side business produced a "break-even result" in the first half of 2010. It was the result of $238 million in catastrophe losses from the Chile earthquake, and storm or weather-related losses in Europe, Australia and New England.

The company reported that price competition in the property/casualty segment has resulted in declining premium volume.

"Increased price competition and capacity within the industry could lead to a further decline in premium volume in 2010," Berkshire Hathaway stated in the SEC filing.

Berkshire Hathaway Reinsurance Group's earned premiums on catastrophe and individual risks declined 34% over the first half of 2010, compared to a year earlier. The company, which underwrites excess of loss reinsurance and quote-share coverages, registered $133 million in estimated losses during the first half of 2010 resulting from the Chile earthquake in February and April's explosion of the Deepwater Horizon rig in the Gulf of Mexico. Those losses were partially offset by reductions in estimated prior years' loss reserves.

The company said it has constrained the volume of business it has written in this sector during 2010 because of unfavorable premium rates.

"However, we have the capacity and willingness to write substantially more business when appropriate pricing can be obtained," the company stated.