Gains at insurance units including Geico helped Warren Buffett’s Berkshire Hathaway
Inc. to a net income gain of 9.6% to nearly $5 billion in the fourth quarter of 2013, it was announced March 1 in a statement including Buffett’s annual letter to shareholders.
Premiums from insurance subsidiaries like Geico, which is wholly owned by Berkshire and recently surpassed Allstate
to become the second biggest auto insurer, have long fueled Berkshire’s growth. Berkshire’s insurance segment posted a quarterly underwriting profit of $394 million, compared with a loss of $19 million a year ago, when claims from Superstorm Sandy impacted results.
“On the operating front, just about everything turned out well for us last year – in certain cases very
well,” Buffett said in his letter to shareholders.
Berkshire’s extensive insurance operation generated an underwriting profit of about $3.1 billion in 2013, and has turned an underwriting profit for 11 years in a row. It also increased its float (“money that doesn’t belong to us but that we can invest for Berkshire’s benefit,” Buffett said in the letter). During that 11-year stretch, Berkshire’s float has grown from $41 billion to $77 billion.
“Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume,” Buffett said. “Consequently, as our business grows, so does our float.”
Looking ahead, Buffett said he believes Berkshire will continue to underwrite profitably in most years. “Doing so is the daily focus of all
of our insurance managers who know that while float is valuable, it can be drowned by poor underwriting results,” Buffett said. “Charlie and I believe the true economic value of our insurance goodwill – what we would happily pay to purchase an insurance operation possessing float of similar quality
to that we have – to be far in excess of its historic carrying value. The value of our float is one reason – a huge reason – why we believe Berkshire’s intrinsic business value substantially exceeds its book value.”