The party is over for record profits, warns Buffet

“The party is over” and insurance industry-wide profit margins will tumble in 2008, Berkshire Hathaway CEO Warren Buffet warned in an annual letter to shareholders.
“It’s a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008,” Buffet wrote.
“Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by four percentage points or so. If the winds roar or the earth trembles, results could be far worse. So, be prepared for lower insurance earnings during the next few years.”
Net earnings in 2007 for Berkshire Hathaway amounted to US$13.2 billion, compared to the company’s 2006 result of US$11 billion, according to documents filed with the U.S. Securities Exchange Commission.
At year-end 2007, Berkshire Hathaway reported an insurance liability of US$56 billion “that represents our guess as to what we will eventually pay for all loss events that occurred before year-end (except for the US$3 billion of the reserve that has been discounted to present value),” Buffet said in his letter.
Berkshire Hathaway also included a reserve for losses that occurred year-end but “that they have yet to hear about.”