Tags: Earnings
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Berkshire Hathaway had a stellar 2024, just as many expected. The company posted $47.4 billion in net operating earnings, alongside $41.4 billion in investment gains. With a $171 billion insurance float and a staggering $321 billion in cash, shareholders have little to complain about. A major driver of this success was the insurance segment, which delivered $9 billion in underwriting profits—a 51% jump from $5.4 billion in 2023, following a small loss in 2022. This turnaround was arguably the biggest revelation of the year. So, let’s take a closer look at the full Berkshire 2024 picture.
Introduction
Berkshire Hathaway stands as a financial behemoth with a storied history, guided by the legendary investor Warren Buffett ↗. The year 2024 marks a significant chapter in Berkshire's journey, characterized by substantial financial achievements and strategic maneuvers that underscore its resilience and growth. At the heart of this success is the insurance sector, a cornerstone of Berkshire's portfolio that reflects its historical roots in the industry.
Pre-market data indicate that Mr. Market also liked Berkshire's earnings, BRK-B shares are currently trading at around $483 after a close at around $488 on Friday 21st. Note that this implies a market capitalization of around $1.03 trillion and a price-over-operating-earning (PoOE) ↗ measure of around 22. That's excluding investment gains but still short of the current S&P's PE ratio north of 30 6.
As we delve into the operations of Berkshire Hathaway in 2024, we witness a dynamic interplay between various business segments, each contributing to the company's robust performance. This article will explore Berkshire's insurance operations, investment strategies, and other business segments, offering a comprehensive view of how this conglomerate navigates the complexities of the modern financial landscape.
The Power of Insurance: Berkshire's Crown Jewel
In 2024, the insurance segment reaffirmed its position as Berkshire Hathaway's crown jewel, playing a pivotal role in the company's overall earnings. As the largest contributor to annual operating earnings, the insurance sector demonstrated remarkable resilience and growth, achieving a 51% increase in operating earnings despite facing significant catastrophe losses 2. This underscores the strategic importance of the insurance business within Berkshire's diverse portfolio.
Central to the insurance segment's success is the concept of "float", a unique feature in the insurance industry that allows companies to invest premiums collected before paying out claims ↗. In 2024, Berkshire's float increased to an impressive $171 billion, highlighting its historical significance and the strategic advantage it provides in generating investment income 2.
A key player in this success story is GEICO, which showed improved performance and profitability. With a combined ratio of 81.5%, GEICO efficiently managed its expenses, spending only 81.5 cents of every dollar in insurance premiums on losses and expenses. This, coupled with an increase in policies, underscores GEICO's robust contribution to Berkshire's insurance operations 2.
Reflecting on historical insurance challenges, such as Hurricane Katrina ↗, provides perspective on current events like Hurricanes Helene and Milton, which impacted underwriting results. Despite these challenges, Berkshire's insurance segment achieved underwriting profits, with after-tax claims from the hurricanes amounting to $1.2 billion 1. The strategic importance of underwriting profits and losses cannot be overstated. The following table illustrates the dramatic turnaround in underwriting earnings over the past three years, showcasing a remarkable recovery from a $30 million loss in 2022 to $9.0 billion in 2024 1:
| Year | Underwriting Earnings (After-Tax) |
|---|---|
| 2022 | - $30 million |
| 2023 | $5.4 billion |
| 2024 | $9.0 billion |
This transformation highlights the insurance segment's critical role in Berkshire's financial architecture, reinforcing its status as a cornerstone of the company's enduring success. Thank you, Ajit!
The insurance industry as a whole is poised for substantial growth, driven by escalating environmental risks and the increasing frequency of climate-related disasters. Catastrophic events, such as the Greater LA Fires ↗, have underscored the mounting challenges insurers face, pushing premiums higher to account for growing liabilities. As extreme weather events become more common, insurers must not only adjust their pricing models but also reassess risk exposure and underwriting strategies to maintain profitability.
For Berkshire, 2024 was a particularly strong year, and the broader insurance sector shared in this success. Rising premiums, a disciplined underwriting approach, and favorable market conditions helped bolster industry-wide earnings 5. However, with climate change amplifying systemic risks, regulatory scrutiny is set to increase. Governments and financial watchdogs are likely to introduce stricter capital requirements, stress tests, and sustainability mandates to ensure insurers can withstand a future of heightened volatility. While these evolving risks present challenges, they also create opportunities. Companies that effectively navigate this shifting landscape—leveraging advanced risk modeling, reinsurance strategies, and diversified portfolios—stand to benefit. For Berkshire, with its deep capital reserves and disciplined underwriting, the changing environment could reinforce its competitive edge in the years ahead.
Investment Income: Riding the Waves of Market Volatility
In 2024, Berkshire Hathaway demonstrated its adeptness at navigating the turbulent waters of market volatility, achieving a remarkable 43% increase in investment income compared to the previous year 2. This impressive growth was largely attributed to higher short-term investment balances, showcasing the company's strategic prowess in optimizing its financial resources amidst fluctuating market conditions.
Historically, market volatility has been both a challenge and an opportunity for astute investors like Warren Buffett. By drawing parallels to past economic cycles, we can appreciate how Berkshire's investment strategies have evolved to capitalize on market fluctuations. In 2024, Berkshire made a strategic decision to be a net seller of publicly traded stocks for example in Apple and Bank of America, marking the ninth consecutive quarter of net stock sales 2. This move underscores a cautious approach to equity markets, reflecting Buffett's philosophy of intrinsic value over short-term gains. Buffett's perception of an overvalued market is further underlined that also in the fourth quarter of 2024, Berkshire did not perform any share repurchases / buybacks.
Consequentially, the year also saw a significant shift in Berkshire's portfolio composition, with the percentage of publicly traded stocks decreasing from 63% to 53%, while cash reserves rose from 28% to 43% 2. This strategic reallocation not only provided a buffer against market volatility but also positioned Berkshire to seize future opportunities when valuations align with intrinsic value assessments.
Currency exchange rate gains further bolstered Berkshire's financial performance, contributing $1.1 billion to other earnings in 2024 1. These gains highlight the company's ability to leverage global financial dynamics to its advantage, even as investment losses from non-U.S. dollar investments offset some of these gains.
In line with Buffett's views on market volatility, Berkshire's investment decisions in 2024 reflect a prudent balance between risk management and opportunity seeking. Notable moves included the acquisition of the final 20% of Pilot Travel Centers, now fully owned by Berkshire ↗ 2.
Railroads and Energy: The Engines of Diversification
Burlington Northern Santa Fe (BNSF), Berkshire's railroad subsidiary, faced a challenging year in 2024, grappling with labor agreements and litigation charges 2. Despite these obstacles, BNSF's performance underscores the historical significance of railroads in American economic development and their pivotal role in Berkshire's diversified portfolio.
BNSF's improved productivity and operating ratio are testaments to its operational efficiency, even as operating earnings decreased by 1% compared to 2023 2. This resilience highlights the enduring value of railroads as a backbone of Berkshire's investment strategy, providing stability and growth potential in an ever-evolving economic landscape.
In the energy sector, Berkshire Hathaway Energy (BHE) reported a staggering 60% increase in operating earnings, driven by lower wildfire loss accruals 2. This remarkable growth reflects the strategic importance of energy diversification, with investments in natural gas pipelines and a focus on reducing wildfire risks 1. As climate change and regulatory complexities continue to shape the energy landscape, Berkshire's proactive approach positions it to navigate these challenges effectively.
To illustrate the contributions of BNSF and BHE to Berkshire's overall performance, consider the following table with amounts in million dollars:
| Segment | 2022 Earnings | 2023 Earnings | 2024 Earnings |
|---|---|---|---|
| BNSF | $5,946 | $5,087 | $5,031 |
| Berkshire Hathaway Energy | $3,904 | $2,331 | $3,730 |
This table highlights the stabilization of BNSF's earnings and BHE's return to approximately $4 billion earnings ↗. It will be very interesting to see how the trend continues for both subsidiaries in 2025.
Manufacturing, Service, and Retailing: Adapting to Market Shifts
In 2024, Berkshire Hathaway's manufacturing, service, and retailing businesses experienced a 2.2% decrease in after-tax earnings compared to the previous year 1. This decline reflects the complex dynamics of these sectors, which are often subject to the vagaries of market shifts. Historically, the manufacturing and service industries have demonstrated remarkable resilience and adaptability, evolving through various industrial transformations to meet changing consumer demands and technological advancements.
The decrease in earnings was primarily driven by lower returns from service and retailing businesses, a trend partially offset by gains in manufacturing 1. The aviation services sector, including companies like NetJets and FlightSafety, faced increased costs despite strong revenue growth, while the retailing group saw a 19.2% decline in pre-tax earnings 2. These challenges underscore the ongoing pressures of rising expenses and fluctuating sales volumes in the face of evolving market conditions.
However, not all stories within this segment are of decline. Precision Castparts emerged as a success story, achieving a 24.4% increase in pre-tax earnings in 2024, driven by sales increases and improved manufacturing efficiencies 2. This highlights the strategic importance of diversification within Berkshire's portfolio, which allows for a balanced approach to risk and opportunity across various industries.
The historical context of these sectors reveals a pattern of adaptation and transformation. Just as the industrial revolutions of the past reshaped manufacturing, today's businesses must navigate the challenges of globalization, digitalization, and shifting consumer preferences. The ability to pivot and innovate is crucial for sustaining growth and profitability in an ever-changing landscape.
Navigating Economic and Regulatory Landscapes
Berkshire Hathaway's operations are deeply intertwined with broader economic trends, such as the decline in the Leading Economic Index (LEI), which fell by 0.3% in January 2025 4. This decline signals potential challenges ahead but also offers insights into the resilience required to navigate such landscapes. Historically, economic indicators like the LEI have played a pivotal role in shaping business strategies, guiding companies through various economic cycles.
In the realm of regulation, Berkshire faces evolving challenges, particularly in the insurance sector, where compliance with regulations like Solvency II and IFRS 17 is crucial 3. These frameworks demand rigorous risk management and strategic compliance to maintain profitability and competitiveness. The impact of climate change further complicates the landscape, with 30-40% of insurers expected to adjust pricing strategies to account for increased risks 3.
Technology and innovation are pivotal in navigating these economic and regulatory challenges. Significant investments in digital transformation are expected to enhance operational efficiency and customer engagement 3. This technological evolution mirrors historical shifts, where businesses have leveraged innovation to overcome regulatory hurdles and economic downturns.
The historical evolution of regulatory frameworks has always influenced business operations. From the industrial age to the digital era, companies have adapted to new rules and standards, using them as opportunities for growth and differentiation. Today, as Berkshire Hathaway continues to navigate these complex landscapes, the lessons of the past offer valuable insights into crafting strategies for a sustainable and prosperous future.
Conclusion: A Vision for the Future
As we reflect on Berkshire Hathaway's performance in 2024, it is clear that this year has been marked by both achievements and challenges that highlight the resilience and adaptability of its business model. The insurance segment, as the crown jewel of Berkshire, not only weathered significant catastrophe losses but also achieved an impressive 51% increase in operating earnings, reaffirming its critical role in the company's overall success. This resilience is further illustrated by the strategic management of Berkshire's investment portfolio, which saw a 43% increase in investment income, showcasing the company's ability to navigate market volatility effectively.
Historically, Berkshire Hathaway has thrived by making strategic decisions that align with its long-term goals. The shift towards a more cautious investment approach, as evidenced by the net sales of publicly traded stocks and the increase in cash reserves, reflects a prudent strategy in an unpredictable economic landscape. This historical perspective underscores the importance of maintaining an intrinsic value focus, a principle that has guided Warren Buffett throughout his legendary career.
As we look to the future, the transition of leadership to Greg Abel signals a new chapter for Berkshire Hathaway. Buffett's insights will undoubtedly continue to influence the company's direction, but Abel's leadership will bring fresh perspectives and strategies to navigate the complexities of a rapidly changing market. Shareholders should take comfort in the continuity of Berkshire's core values while remaining open to the innovative approaches that Abel may introduce.
The financial performance of Berkshire Hathaway in 2024 serves as a reminder of the significance of understanding operating earnings and their implications for intrinsic value. With operating earnings rising by 27% and per-share operating income increasing by 28%, shareholders are positioned to benefit from a robust financial foundation. However, it is essential for investors to remain engaged and informed, drawing on historical lessons to navigate the uncertainties that lie ahead.
Looking forward, Berkshire Hathaway is well-equipped to face economic trends and regulatory challenges, thanks to its diversified portfolio and strategic investments. The company's commitment to innovation and adaptation will be crucial as it continues to explore new opportunities for growth. Shareholders are encouraged to participate in this journey, contributing to the ongoing success of Berkshire Hathaway.
As we stand at the crossroads of a new era for Berkshire Hathaway, we invite our shareholders to remain engaged, informed, and optimistic. Together, we can navigate the complexities of the future, leveraging the lessons of the past to forge a path toward sustained growth and resilience. The journey ahead is filled with potential, and with your support, we can continue to build upon the legacy of success that defines Berkshire Hathaway. See you all on Saturday, May 3rd 2025 in Omaha!
References
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Takeaways From Berkshire Hathaway’s 2024 Earnings And Buffett’s Letter - www.forbes.com ↩↩↩↩↩↩↩↩↩↩↩↩
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Key Points from Deloitte’s 2025 Global Insurance Outlook - www.actupool.com ↩↩↩
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The Conference Board Leading Economic Index® (LEI) for the US Declined in January - www.conference-board.org ↩
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Home Insurance Stocks Face Big Losses From California Fires. Will Investors Foot The Bill? - www.investors.com ↩
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S&P 500 PE Ratio - www.multpl.com ↩
