Berkshire's operating earnings slip as GEICO's claims costs climb

What happened

Berkshire Hathaway reported on Saturday 7 November that its third-quarter operating earnings were $12.705 billion, down from $13.485 billion a year earlier, as profit from insurance underwriting shrank. ^{[1, 5]}

Net earnings were $22.112 billion against $30.796 billion, the company said; the gap is mostly smaller gains on its stock holdings. Berkshire says such gains in any one quarter are 'usually meaningless'. ^[1]

Why it matters

Insurance underwriting earned $1.352 billion after tax, against $2.369 billion, a decline of 42.9 percent, the quarterly report says. ^{[1, 2]}

The businesses outside insurance moved the other way. BNSF, the railroad, earned $1.729 billion against $1.449 billion; Berkshire Hathaway Energy $1.612 billion against $1.489 billion; manufacturing, service and retailing $4.042 billion against $3.616 billion. ^[1]

Inside GEICO

All three underwriting groups earned less than a year earlier, the report says. GEICO's pre-tax underwriting earnings were $982 million against $1.773 billion, according to the report. Its loss ratio, claims and claim costs as a share of premiums earned, was 76.6 percent, 5.1 points higher. ^{[2, 5]}

The report puts that down to more frequent and more costly claims and lower average premiums per policy. Underwriting expenses were up 17.0 percent, and over nine months the report names higher commissions and advertising. ^[2]

Income from investing insurance money was $2.734 billion against $3.181 billion, which the report attributes to lower interest rates. ^{[1, 2]}

Cash, buybacks and stocks

Berkshire bought back about $9.6 billion of its own shares in the quarter, about $14.4 billion over nine months, the release said. CNBC reported cash and Treasury bills of $377.4 billion, up from $365.5 billion at the end of June. ^{[1, 6, 5]}

The report's own measure is lower: $352.3 billion, net of Treasury bills bought in September and paid for in October, and leaving out the railroad and utilities. Both figures are on the balance sheet, which shows $20.5 billion of such unsettled purchases. ^{[2, 6]}

By the desk's arithmetic on the cash-flow statements, Berkshire paid about $2.4 billion for stocks in the quarter and received about $2.8 billion from sales. Over nine months it bought more than it sold: $41.8 billion against $30.6 billion, the report shows. ^{[2, 3]}

What settles it next

As of Sunday 8 November the quarterly report was on Berkshire's own site but not yet on EDGAR, where the newest filing listed was dated Tuesday 3 November. The list of its stock holdings, Form 13F, is due within 45 days after the quarter that ended on 30 September, the SEC's guidance says. ^{[8, 7]}

The quarter was Greg Abel's third as chief executive, a job Warren Buffett handed him in January, AP reported. Howard G. Buffett became chairman on Friday 18 September, the company said. ^{[5, 4]}

Who it reaches

Berkshire Hathaway (BRK.B) is direct: the results are its own. Occidental Petroleum (OXY) is adjacent: the report says Berkshire's equity method earnings were $513 million higher after tax in the quarter because of higher earnings from Occidental. ^[2]