Warren Buffett’s Berkshire Hathaway reports solid rise in earnings after Geico finally swings to profitability

Geico reported $703 million in earnings as higher average premiums and lower advertising spending contributed to the gain even as claim frequencies fell, Berkshire said in a statement reporting first-quarter earnings on Saturday. Overall, the conglomerate posted operating profit of $8.07 billion, up almost 13% from the same period a year earlier.

Geico’s revival follows a difficult period for the underwriting business as inflation took its toll on the cost of materials and labor. Geico has also been facing pressure from rivals including Progressive Corp., which Buffett has called “well-run,” and Allstate Corp. which had long used telematics programs to track drivers and encourage better behavior before Geico introduced the offering.

Berkshire has previously said it expected Geico to return to operating profitability in 2023, after securing premium rate increases.

Geico’s profit also helped Berkshire’s collection of insurance underwriting businesses deliver $911 million in profit compared with $167 million a year earlier. Berkshire has added Alleghany Corp. to its list of insurers, closing the $11.6 billion acquisition late last year.

Lags Peers

Still, Geico remains an issue for Berkshire, with top line growth in the quarter of less than 1% that “significantly lags peers,” CFRA analyst Cathy Seifert said. 

“I suspect rate hikes being put through to offset claim cost inflation is being met with policy cancellations,” she said. “While the loss of unprofitable policies is not always a bad thing- that’s not usually the policies  — and policyholders  — that leave.”

Other parts of the conglomerate took a hit, with after-tax earnings from Berkshire Hathaway Energy falling 46.3% from the same time last year amid “lower earnings from the US regulated utilities, other energy businesses and real estate brokerage businesses.”

Berkshire bought back $4.4 billion of stock, an increase from the same period last year, as the billionaire investor’s sprawling firm confronted turbulent markets that offered fewer of the blockbuster deals the investor is renowned for. Berkshire has turned toward buybacks more often as valuations in public markets had made it more challenging for Buffett to identify promising acquisitions.

Cash Hoard

Berkshire also topped up its cash pile, ending the quarter with roughly $130.6 billion, after finishing last year with $128.6 billion of cash on hand. The company was a net seller of equities in the quarter, pocketing $10.4 billion from stock sales after deducting purchases.

As the Federal Reserve hiked interest rates to combat inflation, Berkshire’s investment earnings rose, helping overall profit increase to $35.5 billion in the quarter. Berkshire often recommends that investors look past investment gains, which are tied to accounting rules and can be misleading to investors.

The company is hosting its annual general meeting in Omaha, Nebraska, later in the day, where Buffett and his long-time business partner and Vice Chairman Charlie Munger will field questions from thousands of fans. To follow Bloomberg’s live blogging of the event, click here.