Falling insurance rates hurt Berkshire Hathaway profit

Billionaire Warren Buffett’s Berkshire Hathaway Inc. said Friday that first-quarter profit declined 64% as falling rates reduced returns from insurance operations.

Net income decreased to $940 million, or $607 a share, from $2.6 billion, or $1,682, a year earlier, the Omaha-based company said. Operating earnings, which exclude investment losses, were $1,247 a share, lagging behind the $1,430 average estimate of three analysts compiled by Bloomberg. The company had $991 million in investment losses as it marked down the value of derivative contracts.

“Berkshire Hathaway has a significant risk posed on derivative contracts,” said Charles Hamilton, an analyst at FTN Midwest Securities Corp. “We’ve seen some of those derivatives come back to bite them.”

Competition has forced down U.S. insurance rates. Berkshire, which owns National Indemnity, General Re Corp. and Geico Corp., typically gets about half its profit from insurance.

Profit from underwriting insurance policies dropped 70% to $181 million. Pretax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, fell 95% to $29 million.

Geico’s profit declined 37% to $186 million before taxes on rising claims costs. Price reductions from last year, which went into effect as drivers renewed their policies, also cut into the insurer’s profit margin, which fell to 6.1 cents on every dollar in premiums from 10.3 cents a year earlier.