Berkshire Hathaway Profits Drop on Insurance Weakness
Berkshire Hathaway reported a drop in quarterly profit, driven by weakness in its insurance operations and a significant writedown on its Occidental Petroleum investment. The downturn in the insurance unit, historically a core profit center, raises questions about the conglomerate's performance in a shifting global risk environment.
A $4.5 billion writedown on investments in Occidental Petroleum and Kraft Heinz contributed to the decline in Berkshire Hathaway's latest quarterly profits. The company's operating earnings fell by nearly 30% to $10.2 billion in the fourth quarter of 2025. This marks the final quarter with Warren Buffett as CEO, with Greg Abel officially taking the helm at the start of 2026. The insurance division, a traditional stronghold for Berkshire, saw its underwriting profits plummet by 54% to $1.56 billion. This was accompanied by a nearly 25% drop in insurance investment income. In his first letter to shareholders, new CEO Greg Abel noted that after years of rate increases, the company is seeing lower customer retention at GEICO and expects to write less property and casualty business for a period. Globally, the reinsurance market is navigating a complex environment. Insured losses from natural disasters in 2025 were estimated to be around $108 billion, exceeding the $100 billion mark for another consecutive year. Events like the Los Angeles wildfires in January 2025, which caused an estimated $53 billion in overall losses, highlight the increasing impact of non-peak perils such as wildfires, floods, and severe storms. The writedown of the Occidental Petroleum stake reflects challenges in the oil and gas sector, which is grappling with price instability due to production surpluses and a slow recovery in global demand growth. Despite the writedown, Berkshire has stated it does not intend to sell its Occidental shares. The energy industry as a whole is facing pressures to decarbonize and is navigating a landscape of shifting government policies and rising operational costs. In his inaugural shareholder letter, Greg Abel emphasized a commitment to maintaining Berkshire's long-standing culture of financial discipline. He highlighted the company's substantial cash hoard of $373.3 billion as "dry powder" to be deployed when opportunities arise. Abel also signaled a focus on improving operating margins at the BNSF railroad and cautiously approaching investments in the energy sector to meet demand from AI, ensuring risks and rewards are balanced. GEICO, a key component of Berkshire's insurance operations, has significantly increased its advertising spending in an effort to boost customer growth. In 2025, the auto insurer launched its largest-ever creative campaign, spanning eight campaigns and seven product lines. However, this surge in marketing expense has so far outpaced the growth in premiums, raising concerns about its impact on profitability.
