Warren Buffett’s core reinsurance interests bounced back to health in 2006, after taking a hit from 2005’s natural catastrophe season.
The figures were the centrepiece of Mr Buffett’s annual letter to shareholders, published on Thursday. The “sage of Omaha” said the “great majority” of his 73 businesses did “outstandingly well”.
The insurance businesses of his Berkshire Hathaway investment vehicle generated an underwriting profit of $3.8bn, up from $53m in 2005.
That included a $526m net contribution from reinsurer General Re.
But Mr Buffett’s outlook for reinsurance was cautious. “Rates have recently fallen because a flood of capital has entered the super-cat field. We have therefore sharply reduced our wind exposures,” he writes. “Be fearful when others are greedy and be greedy when others are fearful.”
He said the group’s “float” – investable money it holds but does not own – had grown to nearly $58bn, boosted by $7bn from the recent deal with Lloyd’s of London to reinsure the market’s past liabilities previously held by Lloyd’s Equitas vehicle.
Access to that float, Mr Buffett said, was worth the risk of having to pay out up to $13.9bn in claims: “[We] think the odds are in our favour. And should we be wrong, Berkshire can handle it.”
Berkshire’s utility operations also thrived.
MidAmerican Energy Holdings, in which Berkshire holds an 86.6 per cent stake, and which in turn owns Yorkshire Electricity and Northern Electric in the UK, had net earnings of $916m, up from $563m in 2005.
Of the group’s 17 minority holdings worth more than $700m apiece, including 13 per cent of American Express, 17 per cent of Moody’s and 18 per cent of the Washington Post, only one, Wal-Mart, was trading below the level at which the shares were acquired.
In total, the holdings were worth $61.5bn, compared with an aggregate $23bn purchase price.
Shares in Posco, the South Korean steelmaker, jumped more than 3 per cent on Friday after Mr Buffett revealed that Berkshire Hathaway’s stake in the company had risen to 4 per cent.
“Investors are excited about the shares because of an M&A possibility and strong fundamentals,” said Kim Kyung-jung, an analyst at Samsung Securities. “And the shares are still undervalued relative to their peers.”
Shares in Tesco rose as much as 2 per cent on news that Berkshire Hathaway had amassed a 2.9 per cent stake in the UK supermarket group.
In his letter, Mr Buffett, 76, also said he intended to appoint one or more new recruits to succeed him as the group’s investment mastermind.
Get alerts on Financials when a new story is published