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Berkshire trebles profits, but reins in reinsurance

Just days after announcing its largest ever acquisition, Berkshire Hathaway has unveiled third quarter net profits that almost trebled from $1.1bn to $3.2bn on the back of rebounding stock index derivative contracts.

But despite the significant recovery in the investment conglomerate's net worth, the sheer scale of its impending Burlington Northern Santa Fe Corporation (BNSF) takeover means it will continue to constrain business written by its reinsurance arm, it said.

In its 10-Q filing, Berkshire Hathaway said that it would not reverse the strategy earlier this year of limiting its reinsurance portfolio in the face of then dwindling net worth and a first quarter loss.

"Though net worth has recovered significantly since then, management will continue to constrain the volume of business written in light of the pending BNSF acquisition.

"Also, premium rates have not been attractive enough to actually warrant increasing volume thus far in 2009," the Warren Buffett-headed company explained.

Berkshire Hathaway is spending $26bn - including $16bn cash - in buying the 77.4 percent of the BNSF rail freight operator it doesn't already own.

Although net profits jumped as last year's third quarter losses on derivative contracts reversed - from a $819mn loss to a $1.1bn gain - operating profit was marginally down on the prior-year period from $2.07bn to $2.06bn.

Book value was up 10.1 percent though over the quarter to $81,247 per Class A share, while the giant's insurance float has gained around $4bn over the nine months to 30 September to sit at $62bn.

And its reinsurance operations on the face of it posted solid figures for the quarter.

Berkshire Hathaway Reinsurance Group booked a $167mn Q3 underwriting gain, almost exactly reversing the $166mn loss in the prior-year period, while premiums earned of $1.23bn were moderately down on the $1.38bn in Q3 2008.

But the underlying picture reveals a significantly larger amount of premiums earned under its 20 percent quota share of Swiss Re's P&C book entered into at the start of 2008, and an equally significant scaling back of its own business.

Premiums earned under the Swiss Re contract rose from $496mn to $717mn quarter-to-quarter, and from $1.17bn to $2.03bn for the nine months to 30 September year-on-year.

But excluding the Swiss Re quota share, other multi-line premiums earned were down 47 percent in Q3 and 44 percent in the first nine months of the year, "primarily due to significant reductions in aviation, property, workers' compensation and Lloyd's market volume", according to Berkshire Hathaway.

General Re, meanwhile, posted a $186mn underwriting gain for the quarter on premiums earned of $1.48bn that were broadly flat with a prior-year period that had generated a smaller $54mn gain.

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