Berkshire Hathaway reports full-year results – insurance takes big hit
Broken down, here’s how the group performed in terms of net earnings for the year:
Source
2022
2021
2020
Insurance – underwriting
US$(90 million)
US$728 million
US$657 million
Insurance – investment income
US$6.48 billion
US$4.81 billion
US$5.04 billion
Railroad
US$5.95 billion
US$5.99 billion
US$5.16 billion
Utilities and energy
US$3.9 billion
US$3.57 billion
US$3.14 billion
Manufacturing, service, and retailing
US$12.51 billion
US$11.12 billion
US$8.3 billion
Investment and derivative contract gains/(losses)
US$(53.61 billion)
US$62.34 billion
US$31.59 billion
Other
US$2.04 billion
US$1.24 billion
US$(11.37 billion)
Group
US$(22.82 billion)
US$89.8 billion
US$42.52 billion
Lifting the lid on the underwriting numbers, Berkshire Hathaway said: “Insurance underwriting generated an after-tax loss of US$90 million in 2022 and after-tax earnings of US$728 million in 2021 and US$657 million in 2020. Insurance underwriting results included after-tax losses from significant catastrophe events of approximately US$2.4 billion in 2022, US$2.3 billion in 2021, and US$750 million in 2020.
“Underwriting results in 2022 were also negatively impacted by increases in private passenger automobile claims frequencies and severities at GEICO, and favourably impacted by higher earnings from reinsurance underwriting and foreign currency exchange rate gains arising from the remeasurement of non-US dollar-denominated liabilities of our US insurance subsidiaries.”
The firm highlighted that the timing and magnitude of catastrophe losses can produce significant volatility in Berkshire Hathaway’s periodic underwriting results, particularly with respect to its reinsurance businesses. Significant catastrophe events last year included Hurricane Ian and floods in Australia.
Buffett’s message to investors
Berkshire Hathaway chair Warren Buffett, meanwhile, asked investors to focus on operating earnings instead.
Buffett stated in his message within the annual report: “Berkshire had a good year in 2022. The company’s operating earnings – our term for income calculated using Generally Accepted Accounting Principles (GAAP), exclusive of capital gains or losses from equity holdings – set a record at US$30.8 billion. [Vice chair] Charlie [Munger] and I focus on this operational figure and urge you to do so as well.”
He continued: “The GAAP earnings are 100% misleading when viewed quarterly or even annually. Capital gains, to be sure, have been hugely important to Berkshire over past decades, and we expect them to be meaningfully positive in future decades. But their quarter-by-quarter gyrations, regularly and mindlessly headlined by media, totally misinform investors.”
The chair went on to highlight the group’s purchase of property & casualty insurer Alleghany Corporation.
“Alleghany delivers special value to us because Berkshire’s unmatched financial strength allows its insurance subsidiaries to follow valuable and enduring investment strategies unavailable to virtually all competitors,” said Buffett.
“Aided by Alleghany, our insurance float increased during 2022 from US$147 billion to US$164 billion. With disciplined underwriting, these funds have a decent chance of being cost-free over time. Since purchasing our first property-casualty insurer in 1967, Berkshire’s float has increased 8,000-fold through acquisitions, operations, and innovations.”
