NU Online News Service, Aug. 6, 11:46 a.m. EDT

Second-quarter profit at Warren Buffett's Berkshire Hathaway Inc. fell about 9 percent on derivative losses, while “insignificant” catastrophe losses restored positive underwriting result in the conglomerate's insurance operations.

Berkshire says second-quarter net income was about $3.12 billion, compared to $3.42 billion during the same time in 2011, due to derivative losses of $693 million.

For the first six months of this year Berkshire Hathaway net income rose to $6.35 billion compared to $4.93 billion a year ago.

Focusing on insurance underwriting, Berkshire's group of insurers posted second-quarter and six-month pre-tax underwriting income of $619 million and $673 million compared to underwriting losses of $7 million and $828 million during the same periods in 2011.

Its direct auto insurer, Geico, saw an 8.2 percent increase in second-quarter premiums earned compared to 2011's second quarter as average premium per policy increased about 2.5 percent over the last year, Berkshire says in its quarterly filing.

However, increases in second-quarter underwriting and loss and loss-adjustment expenses caused Geico to post a slight drop in second-quarter pre-tax underwriting income, from $159 million in 2011 to $155 million in 2012.

Berkshire says higher frequency and severity trends were seen at Geico during the quarter. Furthermore, the adoption of a new accounting standard, which accelerates when certain underwriting costs are recognized in earnings, increased underwriting expenses.

The continued effect of the new accounting standard concerning deferred policy acquisition costs (DPAC) will be completed by the end of the third-quarter, leading Berkshire to believe Geico's underwriting expenses (as measured by the expense ratio) “will decline to historical levels.”

At Berkshire's General Re, second-quarter P&C premiums earned declined 7 percent to $702 million due to competition. But the absence of large catastrophe losses allowed General Re to record an underwriting gain of $138 million for the second quarter and $219 million for the first six months. General Re posted an underwriting gain of $132 million and an underwriting loss of $194 million for the comparable periods in 2011.

Second-quarter premiums earned from catastrophe and individual risk contracts at Berkshire Hathaway Reinsurance Group increased 48 percent, reflecting no significant losses from the types of catastrophes seen in 2011.

Underwriting profit for BHRG was $613 million in the second quarter compared to a loss of $354 million a year ago during eth same time. BHRG posted an underwriting gain of $422 million after six months compared to a loss of about $1.7 billion in 2011.

Special Reports /

Berkshire Insurance Underwriting Returns to Gains in Q2

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