Profit at Berkshire Hathaway Inc. (BRK.A - Get Report) slid 43% in the three months through September as Warren Buffett's insurance businesses racked up $3 billion in estimated claims from a string of natural disasters.
The Omaha, Nebraska-based company cited Hurricanes Harvey, Irma and Maria, which walloped the U.S. and Puerto Rico, as well as a magnitude-7.1 earthquake that ravaged Mexico City on Sept. 19.
"Generally, we consider pre-tax catastrophe losses in excess of $100 million from a current year event as significant, and in the third quarter of 2017, we had four such events," company executives wrote in a regulatory filing on Friday, Nov. 3.
Altogether, the underwriting portion of Berkshire's insurance business reported a $1.44 billion loss in the third quarter and is $1.73 billion in the red so far this year. The dour performance was driven by estimated claims of $1.5 billion at Berkshire Hathaway Reinsurance Group, which provides coverage for insurers worldwide and was tapped for damage from the North American catastrophes.
The magnitude of those losses is troubling, given the firm's stated preference for avoiding certain types of risk, CFRA analyst Cathy Seifert said in a telephone interview.
Still, gains in other businesses, from manufacturing to Burlington Northern railroad, drove earnings to $2,473 a share at Berkshire, higher than both the $2,346 average estimate from analysts surveyed by Bloomberg and a projection from CFRA's Seifert. Net income was $4.07 billion.
At Geico, among the best known of Buffett's insurance companies because of its talking-gecko commercials, an underwriting loss of $416 million -- much of it fueled by Hurricanes Harvey and Irma -- compared with profit of $138 million a year earlier, executives said in the filing. The loss ratio, which compares claims to earned premiums, increased 9.5 percentage points.
Investment income from insurance businesses was far better, with a gain of 23% from the year before pushing the total to $1.04 billion.
"The fact that they were able to grow investment income by 23% speaks to the cash generation of these businesses," Seifert said. "In a quarter of record catastrophe losses, they were still able to do that."
So far this year, the total value of Berkshire's stock holdings has grown 26% to $151.7 billion, with the majority concentrated in six companies: a $14.7 billion stake in credit-card giant American Express Co. (AXP - Get Report) ; a $22.5 billion stake at iPhone-maker Apple Inc. (AAPL - Get Report) ; $18.4 billion at Coca-Cola Co. (KO - Get Report) ; $8.2 billion at IBM (IBM - Get Report) ; $27.7 billion at Wells Fargo & Co. (WFC - Get Report) and $19.4 billion at Bank of America Corp. (BAC - Get Report)
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Manufacturing earnings, including profit from aerospace-parts supplier Precision Castparts, which Buffett bought for $32.7 billion in 2016, slipped to $1.69 billion even as overall sales rose.
Companywide, revenue climbed 2.9% to $60.5 billion, topping analysts' projections of $59.1 billion.
Updated from 5:13 p.m. ET on Friday, Nov. 3, 2017.
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