Berkshire Hathaway reported a substantial 71% increase in operating earnings for the fourth quarter, driven primarily by two key factors: the positive impact of higher interest rates on investment income and a notable improvement within its insurance business.
Operating earnings for the company reached a significant $14.5 billion for the three months ending in December. This impressive figure reflects the strength of Berkshire’s diverse portfolio and its ability to capitalize on favorable market conditions.
A significant portion of the earnings growth came from the insurance sector. Insurance investment income saw a remarkable 48% rise, reaching $4.1 billion, largely attributed to the higher interest rates. Furthermore, insurance underwriting earnings experienced substantial gains, climbing to $3.4 billion during the same period.
GEICO, Berkshire’s subsidiary, played a major role in the growth in underwriting earnings. GEICO’s pretax underwriting profit more than doubled to $7.8 billion in 2024. This outstanding performance reflects the company’s success in managing its insurance operations and adapting to the changing market dynamics. The auto insurer also managed to add new customers in the second half of the year, reversing a previous trend of declining policy growth, a positive sign for its future performance.
Berkshire’s reinsurance businesses also contributed to the positive results. Pretax underwriting earnings from these businesses increased by 44% over the past year, highlighting the strength and resilience of this segment.
However, the company also faced some challenges during the quarter. Berkshire estimated pretax losses of around $1.3 billion stemming from the wildfires that affected regions of Los Angeles last month. The impact of such events underscores the importance of robust risk management strategies within the insurance sector.
CFRA analyst Cathy Seifert offered her perspective. Seifert noted that while Berkshire’s 2024 performance was strong, the company’s future results may be affected by early-year losses and the upcoming hurricane season. She also highlighted GEICO’s successful turnaround, which exceeded expectations after adjustments to certain regional policies.
Cash Holdings and Investments
Berkshire’s cash reserves continued their upward trajectory, increasing for the tenth consecutive quarter and reaching a record $334.2 billion by the end of 2024. This substantial cash position provides the company with considerable flexibility for future investments and strategic opportunities. Concurrently, the company acted as a net seller of shares during the fourth quarter, divesting $6.7 billion in stock, continuing a trend of limited major share purchases.
In his annual letter to shareholders, Warren Buffett addressed concerns about the company’s large cash holdings. Buffett stated that the majority of Berkshire’s assets are invested in equities, a strategic approach that will remain unchanged.
“Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned,” Buffett wrote, emphasizing the company’s long-term investment philosophy.
Buffett also indicated the increasing value of the company’s private equity holdings, which are now larger than its portfolio of marketable securities. The holdings of marketable securities declined by 23% to $272 billion in 2024.
The company also signaled that it may increase its holdings in Japan’s five largest trading houses, namely Itochu, Marubeni, Mitsui, Mitsubishi, and Sumitomo. Berkshire’s initial strategy was to keep its stake below 10%, but the firms have allowed some flexibility as this threshold is approached. This move suggests a strategic alignment with these significant Japanese entities.
Notably, Berkshire did not repurchase its own shares for the second consecutive quarter. This decision may indicate that Buffett believes the stock is trading at a price above its intrinsic value.
Despite gains in overall operating earnings, which were up nearly 27% for the year, Buffett’s letter also noted that 53% of Berkshire’s 189 operating businesses reported a decline in earnings in 2024. This statistic provides insight into the diverse economic landscape within Berkshire’s portfolio.
Jim Shanahan, an equity analyst at Edward Jones, offered his insights. He noted that Buffett’s decision to remain a net seller of shares, in conjunction with earnings declines across many of Berkshire’s subsidiaries, might suggest concerns about a potential slowdown in the US economy.
“If Berkshire represents a snapshot of the broader US industrial, consumer products, services, retailing economy, then, to me, it looks pretty soft right now,” Shanahan said, indicating his perspective on the current market environment.
