Buffett And Munger: The Insurance Earnings Are Going To Go Down

Miss none of the Q&A answers with this edit – we removed only the fluff in between! All Munger and Buffett say is preserved, only gaps and questions have been clipped to save your time. This is the Berkshire Hathaway Shareholders Meeting 2007.

insurance earnings

Buffett And Munger: The Insurance Earnings Are Going To Go Down

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Q1 hedge fund letters, conference, scoops etc

Transcript

Normally we'd take care of business in about five minutes and re-elect the directors. But today we have a an item on the proxy and relative to our holdings of Petro China. We were not required to put that on the ballot the FCC told us we didn't have to but we really thought it would be a good idea to do it so that all of you that are interested can hear about our reasoning and the reasoning of the people who disagree with us.

We'll give them plenty of time to tell you why they think we're wrong and we'll respond. And oh I hope anybody is interested in all of those subject.

I hope you stay right until 4 o'clock. This is Charlie. This follows. Been making all the noise over here.

He's um he's quite hyperkinetic but easy. I think he's on his medicine. Charlie.

Charlie incidentally can hear quite well and I can see so we worked together I have a little. I thought I was doing pretty well when I remembered his name actually. Our combined ages are one hundred and fifty nine for those of you who can't work with big numbers.

We did report our earnings yesterday after the close and I can't see the are up on the monitor. It was a good first quarter we had a good year last year. The insurance earnings are going to go down. There's no question about that how much they go down depends on Mother Nature and a few other factors. But it's been an extraordinary period for insurance. I mean nothing bad happened last year and the same was true in the first quarter as you might expect that. That favorable experience has caused people to lower prices in some areas quite dramatically and the nature of insurance if you write a one year contract say six months ago you were still getting premium at the old rate. If you write a one year policy for another six months so there is a lag effect when things are getting either better or worse and the lag effect from this point forward we will our our insurance rates results will show the effect of lower prices. They will probably show certainly we have the most benign hurricane season imaginable last year. We have less hurricane exposure that we've written this year but nevertheless as natural catastrophes occur we will we will. We will be paying out lots of money if and when they occur. It couldn't get any better than it was last year from our standpoint. So things in the insurance world. Our insurance earnings, underwriting earnings are bound to decrease now. What we really hope over time is more or less to break even on on the underwriting and insurance. So when you see a significant profit like last year or underwriting profit this year just look at that as kind of the good side of what will later be an offset to it in the way of an underwriting loss. But if we break even in insurance on underwriting we do very very well because we we generate lots of float and we earn money on that float and Our float is at an all time high. So this is really the frosting on the cake when we have an underwriting profit and it is not to be expected do necessarily well won't occur year after year over year ever since we've been an insurance business about half the year we've made money underwriting and half we haven't. I think our mix of business now is such that we'll leave it maybe do a touch better than that in the future but we won't do anything like what we did in the last year and then in the first quarter this year there's one unusual item in our balance sheet that you should be aware of on March 30 first you'll see our receivables went up by about 7 billion dollars. That was because of the equity transaction I described in the annual report on March 30 first. The deal basically was closed at the end of the quarter.

So we had a receivable of 7 billion and then a couple of days later we were given 7 billion US.

So that receivable very quickly turned into liquid assets cash in and we sold all the securities we got. So we had seven billion transferred from receivables to cash very early in April. Other than that most of our non insurance businesses did fine. The residential construction related businesses are getting hit.



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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver