Turnaround at an Insurer Helps Profits at Berkshire

By BLOOMBERG NEWS

Published: March 7, 2004

RKB">Berkshire Hathaway Inc., the investment company run by Warren E. Buffett, said yesterday that fourth-quarter profit doubled as the company raised prices at its insurance units and investment gains tripled.

Net income rose to $2.39 billion, or $1,553 per Class A share, from $1.18 billion, or $772 a share, a year earlier, the company said in a statement on its Web site. Profit included $845 million in realized investment gains.

Mr. Buffett, 73, has turned around General Re, the reinsurance company that cost Berkshire $7.5 billion in underwriting losses from 1998 to 2002, by raising rates and dropping unprofitable clients. Economic growth in the United States helped increase profit at several Berkshire subsidiaries, including Acme Brick.

"The insurance business is doing very well," David Winters, chief executive of Franklin Mutual Advisors Inc., said before Berkshire announced earnings. "The real issue for Berkshire is, `How is this cash machine going to deploy all this capital?' "

Franklin Mutual manages about $30 billion, including $893 million of Berkshire shares as of December. Berkshire's cash holdings rose to $36 billion as of Dec. 31, 2003, from $31 billion at the end of September.

General Re had a $28 million underwriting profit in the quarter, in contrast to a $727 million loss last year. Geico, Berkshire's auto insurer, more than tripled its underwriting profit, to $154 from $44 million.

"General Re had been Berkshire's problem child in the years following our acquisition of it in 1998," Mr. Buffett said in his annual letter to shareholders. "That's behind us: Gen Re is fixed."

Total revenue rose 64 percent, to $19.86 billion from $12.1 billion. Profit excluding realized investment gains was $1,003 per Class A share. Charles Gates of Credit Suisse First Boston, the only analyst surveyed by Thomson First Call who had an estimate, expected $867.

Shares of Berkshire, which is based in Omaha and owns energy, aviation, paint and carpet companies and is the biggest investor in Coca-Cola and American Express, rose $1,000, to $93,000 on Friday.