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Berkshire Hathaway fourth-quarter results drop

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Berkshire Hathaway Inc.’s net income for the fourth quarter of 2014 dropped 16.6% from that of the same period a year earlier to $4.16 billion in large part due to a drop in investment gains and derivative losses, Omaha, Nebraska-based conglomerate reported Saturday.

Operating income generated by underwriting in its insurance operations — which include Berkshire Hathaway Reinsurance Group, General Reinsurance, a group of primary insurers as well as personal automobile insurer GEICO — dropped 51.5% to $191 million. Investment income for the insurance operations dropped 2.6% to $880 million.

But for the company as a whole, investment gains dropped 67.6% to $285 million while derivatives posted a loss of $93 million from a $334 million gain in the same period in 2013.

“At General Re and BHRG, results appear to have been adversely affected by adjustments to loss reserve discounts for long-tail reserves (workers’ compensation) as interest rates remain low. We saw a similar impact at AIG. In addition, reserve releases slowed versus the prior-year quarter,” wrote Cliff Gallant, an analyst with Nomura Securities International Inc. in San Francisco. “In BHRG, the quarter included roughly $825 million of increases to the ultimate liability estimates related to prior year asbestos claims, based on the result of an actuarial review."

He added that in the primary lines, “the start-up commercial lines business was the driver of over 30% premium growth as new management appears on track to fulfill senior management’s expectations of being a major competitor within a few years.”

For the year as a whole, Berkshire Hathaway’s net income rose 2.0% to $19.87 billion.

Among insurance groups, Berkshire Hathaway Reinsurance’s underwriting profit for 2014 as a whole dropped 53.0% to $606 million while Gen Re’s dropped 2.1% to $277 million. Underwriting profit for the other primary group rose 62.6% to $626 million.

In its annual report, Berkshire Hathaway noted that Berkshire Hathaway Reinsurance Group posted retroactive reinsurance policy underwriting losses of $905 million in 2014, up from $321 million in 2013.

“In 2014, we increased estimated ultimate liabilities for contracts written in prior years by approximately $825 million, substantially all of which was recorded in the fourth quarter,” said Berkshire Hathaway in its annual report. “In the fourth quarter of 2014, we increased ultimate liability estimates on remaining asbestos claims and re-estimated the timing of future payments of such liabilities as a result of actuarial analysis. The increase in ultimate liabilities, net of related deferred charge adjustments produced incremental pre-tax underwriting losses in the fourth quarter of approximately $500 million.”