Berkshire Hathaway: Strategy of building float helps growth outpace peers

Feb 25 - (The Insurer) - Berkshire Hathaway reported its Q4 and full-year results over the weekend, with quarterly operating earnings per share rising to $10,102, well ahead of the Wall Street consensus of $6,932.

Full-year underwriting profits rose to $11.41 billion in 2024, up from $6.91 billion in the previous year.

This was largely driven by auto-focused U.S. insurer Geico, which more than doubled its pre-tax underwriting profits from $3.64 billion to $7.81 billion.

Berkshire Hathaway’s reinsurance businesses also posted an increase in underwriting profit, rising from $3.51 billion to $3.80 billion.

This more than offset a $1.37 billion fall in underwriting profit at Berkshire Hathaway Primary Group to $855 million in 2024.

The result was achieved despite losses of $1.2 billion related to hurricanes Helene and Milton. Berkshire Hathaway also disclosed that it expects $1.3 billion of losses related to the recent California wildfires in the first quarter of 2025.

Berkshire Hathaway has followed a long-term strategy under which its asset growth has outperformed the wider P&C sector, with its loss ratio regularly under-performing its peers over the past three decades.

As chairman Warren Buffett said in his latest annual letter to shareholders, this strategy “has allowed Berkshire to invest large sums (‘float’) while generally delivering what we believe to be a small underwriting profit”.

As the chart below highlights, Berkshire’s P&C loss ratio has been higher than the S&P-compiled industry average every year since 1999.

At the same time, Berkshire Hathaway’s total assets have grown by over 67 times since 1992, rising from $17 million to $1.2 trillion.

Between 2002 and 2023, Berkshire Hathaway’s asset growth exceeded that of the wider U.S. P&C sector on 14 occasions. This trend was most notable in 2016, 2008, and 2005 when its assets grew by 25%, 19 percentage points more than the industry.

With full data not yet available for the sector as a whole, it is too early to be precise around the extent these trends played out in 2024.

Buffett’s comments in his letter to shareholders suggest no significant shift in strategy is on the horizon, however.

“Berkshire can financially and psychologically handle extreme losses without blinking. We are also not dependent on reinsurers and that gives us a material and enduring cost advantage,” he told investors.