Berkshire Net Tumbles More Than 50% to $1.51 Billion on Catastrophe Costs

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) said first-quarter profit fell 58 percent as catastrophes led by Japan’s earthquake last month caused an underwriting loss at the company’s insurance units.

Net income dropped to $1.51 billion from $3.63 billion the same period last year, Berkshire said today in a statement. Natural-disaster losses exceeded $1.6 billion. Operating earnings declined 28 percent to $1.59 billion from $2.22 billion. Buffett, 80, is Berkshire’s chairman, chief executive officer and largest shareholder.

Earthquakes in Japan and New Zealand and Cyclone Yasi in Australia lifted claims at reinsurers including Munich Re, the world’s largest. Berkshire is third-biggest by policy sales among reinsurers, companies that provide backup coverage to primary carriers.

“We had some major catastrophes in the Pacific Asian areas, and that hit the reinsurance industry particularly hard,” Buffett said today at Berkshire’s annual meeting in Omaha, Nebraska.

Berkshire’s Class A shares have risen 3.6 percent this year in New York Stock Exchange trading. They declined $55 to $124,750 yesterday.

The insurance segment posted an underwriting loss of $821 million, compared with a profit of $226 million a year earlier. The Japan earthquake cost the firm $1.06 billion, a tremblor in Christchurch, New Zealand $412 million, and the Australian catastrophes $195 million, according to the statement.

Photographer: Daniel Acker/Bloomberg

Warren Buffett, chairman of Berkshire Hathaway Inc., speaks to attendees as he tours the exhibition area of the Berkshire Hathaway shareholders meeting on Saturday, April 30, 2011. Close

Warren Buffett, chairman of Berkshire Hathaway Inc., speaks to attendees as he tours... Read More

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Photographer: Daniel Acker/Bloomberg

Warren Buffett, chairman of Berkshire Hathaway Inc., speaks to attendees as he tours the exhibition area of the Berkshire Hathaway shareholders meeting on Saturday, April 30, 2011.

‘Most Loss-Afflicted’

It was “one of the most loss-afflicted first quarters in the history of reinsurance in terms of natural catastrophes,” Munich Re Chief Executive Officer Nikolaus von Bomhard said April 20 when he told investors his company was unprofitable in the period.

Berkshire had a loss of $82 million on derivatives and investments compared with $1.41 billion gain on the holdings a year earlier. Liabilities on the company’s so-called equity- index puts widen when four stock indexes fall further from the levels they were at when Buffett made the deals near the market’s peak in 2006 and 2007.

Japan’s Nikkei 225 (NKY) Stock Average, one of four benchmarks covered by Buffett’s bets, dropped 4.6 percent in the first quarter, led by declines after the earthquake in that country. The stock-price declines in Japan are a “buying opportunity” for equity investors, Buffett said at a news conference in Bangalore in March. The other three benchmarks, including the Standard & Poor’s 500 Index, advanced in the period.

‘Very, Very Bullish’

Profit from regulated businesses, such as the Burlington Northern Santa Fe railroad and utility unit MidAmerican Energy Holdings Co., surged to $908 million from $505 million a year earlier. Matt Rose, the CEO of Burlington Northern, said he is confident about economic expansion led by trade with Asia.

“I’m very, very bullish about the recovery,” Rose said today in an interview in Omaha. “It’s really driven by worldwide demand, specifically China.”

Manufacturing, service and retailing jumped to $558 million in the first quarter from $477 million in the same period in 2010. That group includes Marmon Holdings Inc., a maker of construction materials; carpet manufacturer Shaw Industries; and Fruit of the Loom, which produces underwear and other clothing, according to the company’s annual report. Berkshire didn’t break down results by unit.

“Pretty much all of our businesses with the exception of those that are related to residential housing are getting better,” Buffett said today.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Andrew Frye in Omaha at afrye@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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