Berkshire Hathaway Says Soft Market Affecting Earnings

Omaha, Neb.-based holding company Berkshire Hathaway Inc. said second-quarter net income dropped 8 percent, or $238 million, to $2.88 billion.

The company said declining insurance prices will translate into substantially less profits and warned that investors cannot expect the benefits of low catastrophe losses to continue.

In the company’s Friday filing with the Securities and Exchange Commission, the company reported revenues rose in the quarter by 10 percent, $2.75 billion, to $30.1 billion.

For the first six months of the year, net income is off 33 percent, or $1.89 billion, to $3.82 billion. Revenues are off 8 percent, or $5 billion, to $55.3 billion.

The company reported the economy was affecting a number of its segments, for instance housing and retail, which showed deterioration due to the economic slowdown.

The company’s four insurance segments (GEICO, General Re, Berkshire Hathaway Reinsurance Group and Berkshire Hathaway Primary Group, plus investment income) saw net profit decline 8 percent, or $238 million, to $2.88 billion in the second quarter. Revenues increased 4 percent, or $255 million, to 7.45 billion.

Net profit for the six months declined 33 percent, or $1.89 billion, to $3.82 billion. Revenues during the first half decreased $7 billion, or 32 percent, to $14.76 billion.

The company said underwriting gains this year “will be substantially lower than in 2007 as price competition” has increased substantially over the past two years in most property-casualty markets.

The company’s reinsurance operations have benefited from “relatively low levels of catastrophe losses” that it warned investors may not continue through 2008 with the onset of the hurricane season.

Of its operating segments, GEICO, the writer of auto coverage, reported its combined ratio in the quarter rose 1.5 points to 90.4 percent, while for the six months, it rose 2.8 points to 92.1. The loss ratio is expected to be higher for 2008 compared to 2007.

Losses from catastrophe events for the first six months rose from $40 million in 2007 to $60 million this year.

The company’s reinsurance business General Re saw its premium earned on p-c business drop $6 million to $1.86 billion.

“The reduced premium volume reflects continued underwriting discipline by declining to accept business where pricing is considered inadequate,” the company said in its filing.