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Buffett salutes insurance profits but warns of “dim” future

Investment guru Warren Buffett hailed the healthy underwriting profits from his insurance subsidiaries in the annual letter to Berkshire Hathaway shareholders, but warned of "dim prospects" ahead.

The float from Berkshire's operations ("free money", as Buffett calls it) remained stable in relation to premiums and earned the company $1.6bn in underwriting profit in 2012 - which was the 10th consecutive year of gains.

He noted that in 37 out of the 45 years up to 2011 the US P&C industry's premiums were less than expenses plus claims.

"There are lots of ways to lose money in insurance, and the industry never ceases searching for new ones," he said, singling out US insurance giant State Farm's underwriting loss for eight of the past 11 years.

But he added that further gains would be harder for Berkshire to achieve. Legacy bond portfolios were handing insurers much higher yields than will be available when the funds are reinvested in the future, he warned.

Hailing his own results, he said he rubbed his eyes when he saw that motor insurance arm GEICO brought in an underwriting profit of $680mn in 2012. This was an 18 percent rise on a year earlier, and came despite being hit by the worst single loss in its history in Superstorm Sandy.

GEICO covered nearly 47,000 vehicles that were smashed by the storm, and the loss amounted to thrice the hit it suffered from Hurricane Katrina.

"Neither rain nor shine or nor gloom of night can stop [GEICO]," he said, adding: "When I count my blessings I count GEICO twice."

As is customary, Buffett detailed the rise in Berkshire's float from $39mn in 1970 to $28bn in 2000 and $73bn in 2012.

A year ago Buffett predicted that the float would level off or decline, but in fact the total swelled by $2.5bn in 2012 and he forecast a further rise in 2013.

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