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Berkshire Hathaway sees net income drop 37% in 2015 Q2 over 2014 Q2


August 10, 2015   by Canadian Underwriter


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Net earnings for Berkshire Hathaway Inc. dropped 37% to US$4.1 billion in the second quarter of 2015 from the same quarter of 2014, driven, in part, by the underwriting loss in the company’s Insurance segment.

Net earnings for 2015 Q2 were US$4.1 billion compared to US$6.5 billion in 2014 Q2

Net earnings for 2015 Q2 were US$4.1 billion compared to US$6.5 billion in 2014 Q2, notes a statement Friday from Nebraska-based Berkshire Hathaway, which along with its subsidiaries, engage in diverse business activities, including property and casualty insurance and reinsurance, utilities and energy, freight rail transportation, finance, manufacturing, retailing and services.

The about US$2 billion difference was about the same for Berkshire Hathaway’s half year results, at US$9.3 billion for 2015 and US$11.2 billion for 2014.

Operating earnings were US$3.9 billion for the second quarter of 2015, down from US$4.3 billion in the second quarter of 2014. With regard to first-half operating earnings, though, these were up to US$8.1 billion for 2015 compared to US$7.9 billion in 2014.

Looking specifically at Berkshire Hathaway’s Insurance segment, underwriting was a US$38 million loss in the second quarter of 2015 compared to US$411 million in earnings for the second quarter of 2014. Predictably, six-month results were also down, at US$442 million in 2015, down from US$872 million in 2014.

With respect to Insurance underwriting gains (loss), Berkshire Hathaway reports that GEICO was US$53 million in 2015 Q2 compared to US$393 million in 2014 Q2, General Re was US$107 million compared to US$116 million, Berkshire Hathaway Reinsurance Group (BHRG) was a loss of US$411 million compared to a loss of US$9 million, and Berkshire Hathaway Primary Group was US$203 million compared to US$137 million.

“The timing and amount of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to HBRG and General Re,” notes information from Berkshire Hathaway. “We define pre-tax loses in excess of US$100 million from a single event or series of related events as significant. In the second quarter and first six months of 2015, we had one significant catastrophe loss (US$115 million). In the first six months of 2014, there were no significant catastrophe losses.” [click image below to enlarge]

With respect to Insurance underwriting gains (loss), Berkshire Hathaway reports that GEICO was US$53 million in 2015 Q2 compared to US$393 million in 2014 Q2

As for GEICO, “claims frequencies in the first six months of 2015 increased over 2014 in all major coverages, including collision overage (3% to 4% range), property damage and bodily injury coverages (5% to 6% range) and personal injury protection (PIP) coverage (1% to 2% range),” the information notes.

“Average claims severities were also higher in the fist six months of 2015 for property damage and collision coverages (4% to 5% range), bodily injury coverage (6% to 7% range) and PIP coverage (2% to 4% range),” it adds.

With respect to General Re, Berkshire Hathaway reports that “our premium volume declined in both the direct and broker markets worldwide. Insurance industry capacity remains high and price competition inmost property/casualty reinsurance markets persists. We continue to decline business when we believe prices are inadequate. However, we remain prepared to write more business when more appropriate prices can be attained relative to the risks assumed.”

Still with Insurance, investment income was down in 2015 Q2 compared to 2014 Q2 – US$977 million compared to US$1.1 billion – while for the first half of 2015 and 2014, it was steady.

The Insurance results were in contrast to Non-insurance businesses, which were US$3.1 billion for 2015 Q2 compared to US$2.8 billion for 2014 Q2, and US$6.0 billion for the first half of 2015, up from $5.2 billion for the same period in 2014.

Insurance premiums earned were US$10.4 billion in 2015 Q2, up from US$9.3 billion in 2014 Q2. Numbers were also up for first-half results, at US$19.4 billion in 2015 compared to US$18.7 billion in 2014.

However, Costs and Expenses were also up for the second quarter of 2015 at US$36.6 billion compared to US$31.8 billion in the second quarter of 2014. For the first half of the year, Costs and Expenses were $US68.9 billion in 2015 compared to US$61.7 billion in 2014.

Breaking down Costs and Expenses for 2015 Q2 compared to 2014 Q2, the numbers show the following:

• insurance losses and loss adjustment expenses were US$6.7 billion compared to US$5.5 billion;

• life, annuity and health insurance benefits were US$1.7 billion compared to US$1.3 billion;

• insurance underwriting expenses were US$2.0 billion compared US$1.9 billion;

• cost of sales and services was US$22.6 billion compared US$20.1 billion;

• selling, general and administrative expenses were US$3.4 billion compared to US$3.0 billion; and

• interest expense was US$217 million compared US$116 million.


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