Berkshire's Earnings Off , Shaw’s Pretax Earni

Omaha, NE, May 8--Berkshire Hathaway Inc.'s reinsurance business, which led Warren Buffett's company to a record 2003 profit, helped cause a 10% drop in first-quarter earnings. Unlike last year, when most insurance rates increased, Berkshire said competitors cut prices in the first three months of 2004, prompting the company to restrict sales. The result: net income declined to $1.55 billion, or $1,008 per Class A share, from $1.73 billion, or $1,127, a year earlier. "Clearly some elements of the property casualty business have become more competitive," said Keith Trauner, a fund manager at Fairholme Capital Management, which handles $1 billion, including Berkshire shares. "I would expect Berkshire to be backing off those policies." Berkshire, which owns General Re Corp. among other insurers, said it would prefer to forgo business rather than match some competitors' rates. General Re's sales fell 11% to $1.82 billion in the first quarter. The company echoed comments by American International Group Inc. and other insurers that price increases have slowed or reversed direction after three years. "Underwriters are instructed to reject inadequately priced risks," Berkshire, based in Omaha, NE, said in a statement late yesterday. The company owns paint, brick, aviation and carpet companies in addition to insurers, and is the largest shareholder in Coca-Cola Co. and American Express Co. The quarter's profit also fell because investment income dropped 23% before taxes to $658 million after Buffett sold many of Berkshire's U.S. Treasuries and corporate bonds during the previous 12 months. The company's cash rose to a record $40.9 billion as of March 31 from $36 billion at the end of last year. Berkshire said it expected General Re's premium revenue to decline for the rest of the year unless market conditions change. Berkshire Hathaway Reinsurance Group, the company's other main reinsurance business, had an 85% plunge in underwriting income to $22 million. The unit stopped selling some policies through Lloyd's of London and had a $100 million expense before taxes to move forward estimated payment dates on one large contract. Buffett's reinsurers last year helped to almost double net income to $8.15 billion. The companies take on risks from other insurers. Shaw Industries Inc., the world's largest carpet maker, saw profits increase 20% to $207 million before taxes. McLane Co., a food distributor Buffett bought last year, earned $56 million. Berkshire Hathaway's Class A shares have gained 8.5% this year. Yesterday, they fell $101 to $91,400 in New York Stock Exchange composite trading. The company announced first quarter earnings after U.S. stock exchanges closed. Buffett, the world's second-richest man after Microsoft Corp.'s Bill Gates according to Forbes magazine, said last weekend at the company's annual meeting that he sought acquisitions as big as $20 billion. His biggest investment since 1998 has been to buy foreign currencies on expectations the U.S. trade deficit will weaken the dollar. He increased his currency position, which stood at $12 billion as of Dec. 31, during the last four months, Buffett said in an interview. He sees few investment opportunities in U.S. stocks. Buffett and Vice Chairman Charles Munger told 19,500 shareholders and fans attending the meeting in Omaha that they shouldn't be alarmed by rising cash holdings and fewer reinsurance opportunities. "Don't get too fretful," Munger said. "Patience is part of the game."

Related Topics:Shaw Industries Group, Inc.

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