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.
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 marketas 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 purchasewith 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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