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Berkshire Hathaway's Stock May Be Victim of Reinsurance Pricing Weakness - WSJ
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Executive Producer
After ending 2007 with a gain of almost 29%, their best year since 1998, shares of Warren Buffett's Berkshire Hathaway have been showing some weakness in the New Year. (Although it's still very early, especially when measured in Buffett-time.)
Berkshire was down 5.2 percent during the first third of January, closing yesterday (January 10) at $134,200. The intraday low on January 9 of $128,700 marks the first time BRK has fallen below $130K since late October.
Current price: [US;BRK.A
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Today's "Ahead of the Tape" column in The Wall Street Journal has an idea about what's pulling down BRK. It blames "a soft market in one of (Berkshire's) core businesses -- reinsurance." Writer Liam Pleven says prices are "weakening quickly" on property-catastrophe reinsurance policies as they come up for their annual renewals around this time of year. Marsh & McLennan's reinsurance-brokerage unit reports an average decline of 9 percent for January 1 renewals.
As a result, Berkshire may be moving away from reinsurance and into other areas where it can charge more, like insuring bonds. Just this week, Buffett's new muni bond insurer "tip-toed" into the market as it sold a policy on a $10 million New York City bond. And Buffett's insurance guy, Ajit Jain, told us Berkshire isn't ruling out a partnership or purchase with a big bond insurer like MBIA or Ambac.
A shift away from reinsurance, says the Journal, could hurt Berkshire's profits this year, although "it might not have to payout as much if a big storm does hit this year."
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