After Berkshire Hathaway Inc. reported an 18 percent drop in fourth-quarter net income, its well-known chairman, Warren Buffett, declared that "the party is over" for insurer profit margins.

Mr. Buffett, also the company's chief executive officer, announced in a television interview last week that he was rescinding an offer to reinsure the municipal bond business of three major financial guarantee insurers.

Berkshire--the Omaha, Neb.-based financial holding company and parent of GEICO, General Reinsurance and other insurance and non-insurance entities--reported that net income dropped $636 million to $2.9 billion in the quarter but rose 20 percent, or $2.2 billion, to $13.2 billion for the year.

The corporation's revenues increased over 20 percent, up $20 billion to $118 billion last year.

However, in a letter to shareholders, Mr. Buffett said while the insurance business--"the cornerstone of Berkshire--had an excellent year," he warned that "the party is over," predicting that "insurance-industry profit margins, including ours, will fall significantly in 2008."

Prices are down and exposures are rising, he said, adding that even if the United States does have a third-straight year of light catastrophe losses, profit margins will still shrink by four percentage points.

"If the winds roar and the earth trembles, results could be far worse. So be prepared for lower insurance earnings for the next few years," he wrote.

As a whole, Berkshire insurance premiums earned in 2007 rose 33 percent, up $8 billion to $32 billion. However, underwriting profit dropped 12 percent, down $464 million to $3.37 billion.

General Re's underwriting profit increased 6 percent, up $29 million to $555 million, while Berkshire Hathaway Reinsurance saw its underwriting profit fall by 14 percent, GEICO by 15 percent, and other primary insurance operations by 18 percent.

During an interview with CNBC, Mr. Buffett said he was withdrawing his offer to bond insurers to offer reinsurance for their municipal bond portfolio. He said the offer was put on the table and rejected by the two major financial guarantee insurers--MBIA and FGIC.

Concerning the general economic outlook, he said, "by any common-sense definition, we are in a recession."

However, he added that he is optimistic about the future, "We will be fine. The factories don't go away, the people and their talents don't go away, the houses don't go away, the population grows. Over time, my children will live better than I do," he said.

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Buffett Says 'Party's Over' For Insurer Profit Margins

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