Berkshire posts record profit on insurance, investments

(Reuters) — Warren Buffett’s Berkshire Hathaway on Saturday posted its second straight record annual operating profit, with its insurance business benefiting from improved underwriting and higher income from investments as interest rates rose.

Net income also reached a record $96.2 billion, as the rising stock market boosted the value of Berkshire’s $354 billion equity portfolio, half of which is in Apple.

In his annual letter to shareholders, Mr. Buffett said Berkshire’s insurance businesses performed “exceptionally well” — among them, Geico, where better underwriting quality helped more than reverse year-earlier losses.

This helped offset declining fourth-quarter and full-year profit at the BNSF railroad, where rising wages and costs for upkeep increased as revenue fell, and Berkshire Hathaway Energy, beset by wildfire litigation and a tougher regulatory climate.

Mr. Buffett nevertheless assured investors that his approximately $903 billion conglomerate’s “extreme fiscal conservatism” — including a now-record $167.6 billion cash stake — would serve them well.

Operating profit rose 28% to $8.48 billion, or about $5,884 per Class A share, in the fourth quarter, topping the average analyst forecast for $5,471 per share according to LSEG IBES.

For the year, operating profit rose 21% to $37.4 billion.

“Results reflect the value of holding a diversified collection of operating businesses,” said Edward Jones analyst Jim Shanahan.

He said Geico benefited from a willingness to cede market share by writing fewer risky policies, while also cutting advertising expenses.

The cash stake helped Berkshire’s insurance businesses, which have $169 billion of so-called “float,” generate 38% more investment income in the quarter, as the Federal Reserve boosted short-term interest rates to curb inflation.

Fourth-quarter net income more than doubled to $37.57 billion, or $26,043 per Class A share, while the $96.2 billion annual profit topped the old record of $89.9 billion from 2021.

Mr. Buffett considers net results misleading because they include gains and losses on investments that Berkshire has not sold.

Berkshire also spent about $2.2 billion in the fourth quarter repurchasing its own stock, and roughly $600 million more in the first six weeks of 2024.

But the cash stake grew in part because Berkshire was a net seller of stocks, selling $24.2 billion more than it bought in 2023.

It has been quietly building one or more holdings after obtaining U.S. Securities and Exchange Commission approval for confidentiality so that other investors will not copy Mr. Buffett while he is buying.

Some analysts have said those holdings could come from the bank, insurance and finance sector, where Berkshire invested about $3.6 billion in last year’s second half.