Berkshire Has Loss on Attack Claims; to Raise Rates (Update1)
By Dan Lonkevich
Omaha, Nebraska, Nov. 9 (Bloomberg) -- Billionaire investor Warren Buffett's Berkshire Hathaway Inc. had a third-quarter loss, reflecting $2.28 billion in claims from the attacks that destroyed the World Trade Center.
The Omaha, Nebraska-based company, which owns General Re Corp., car insurer Geico Corp. and a range of other companies and investments, posted a third-quarter net loss of $679 million, or $445 a share, compared with profit of $797 million, or $523, a year earlier. The company's losses from the attack were revised up from an original estimate of $2.2 billion.
Buffett broke from his usual practise of providing minimal quarterly earnings figures with a note to shareholders in which he called himself and the company ``foolish'' for not adequately setting rates to reflect the risk of a major, manmade catastrophe such as the Sept. 11 attacks. While Berkshire and other insurers are raising rates to recoup losses, Buffett said claims may rise further, and take years to sort out; he vowed to overhaul General Re's underwriting practises.
``We, and the rest of the rest of the industry, included coverage for terrorist acts in policies covering other risks -- and received no additional premium for doing so,'' Buffett wrote. ``That was a huge mistake and one that I myself allowed.''
Buffett said $1.7 billion of Berkshire's share of the attack claims -- estimated at as much as $70 billion overall -- came from General Re, while $575 million came from Berkshire's other reinsurance interests. Together, General Re, Geico and Berkshire's other insurance interests account for 60 percent of the company's revenue.
Operating Loss
Berkshire's loss excluding realized gains and losses was $895 million, or $586 a share, compared with profit of $301 million, or $197, a year ago.
Investors had been prepared for Berkshire's losses and were counting on the company being able to recover from losses in the next few years by raising rates and tightening policy terms.
``Pricing is going to be great at General Re,'' which provides coverage to insurers, said William Batcheller, a portfolio manager at Cleveland-based National City Corp., an owner of Berkshire shares.
Geico also has been raising prices, focusing less than it has in the past on gaining market share, he said. Berkshire also owns companies from Executive Jet to See's Candies, and earlier this month agreed to buy underwear maker Fruit of the Loom.
With insurance rates on the rise, Berkshire aims to reverse mounting underwriting losses at General Re and Geico in recent years, investors said. Berkshire's reinsurance units posted underwriting losses of $1.4 billion in 2000, while Geico's loss was $224 million.
``It should be a year with lots of make good,'' said Peter ``Tony'' Russ, co-manager of Fairholme Capital Management, which owns about 2,200 Berkshire shares.
Shares of Berkshire fell $1,300 to $69,600 in trading on the New York Stock Exchange. They have lost almost 2 percent this year, compared with a 10 percent decline in the Standard & Poor's property-casualty index and a 14 percent drop in the S&P 500.
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