berkshire hathaway annual and interim reports 8

Berkshire Hathaway 2024 Annual Report : Berkshire Hathaway : Free Download, Borrow, and Streaming : Internet Archive

This resulted in an ultra-low expense ratio of under 10% for the full year, although the expense ratio climbed up to 11.6% in the fourth quarter as management felt confident enough to increase advertising spending. I’ve written about GEICO in detail several times over the past few years, with the most recent article appearing after the 2023 annual report. This gem of a business performed strongly for decades but underinvested in technology which resulted in its main competitor, Progressive, achieving an advantage in underwriting appropriately for risks assumed. As a result, GEICO experienced significant underwriting losses between Q and Q and also lost market share to Progressive. Management took steps to raise premiums and cut costs which restored underwriting profitability starting in 2023.

• But after a subsequent spike in the stock price in late summer, I failed to take my own advice and sold shares in my retirement accounts, thinking that I would owe no taxes on the sale and shares were getting too expensive.
• Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
• As a result, GEICO experienced significant underwriting losses between Q and Q and also lost market share to Progressive.
• This resulted in an ultra-low expense ratio of under 10% for the full year, although the expense ratio climbed up to 11.6% in the fourth quarter as management felt confident enough to increase advertising spending.
• The report provides Berkshire’s financial statements and disclosures for the quarter as required by the SEC.

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My “base case” is that a company with a “typical” ownership profile is likely to have a “typical” culture eventually. It seems certain that the small number of remaining Class A shares in existence after the Buffett Foundation winds down will be held almost exclusively by large institutions unless the shares are split at some point in the coming years. I should mention that I have received some pushback on my concerns about Berkshire’s culture in the long run, which was the subject of an article last week. As an example, let’s say that you believe that Berkshire’s intrinsic value is $690,000 per Class A share when the stock price is $750,000. You could sell your share today, hoping to buy it back at a lower level in the future.

Of course, if Berkshire deploys cash, the goal will be to earn returns materially higher than the yield on treasury bills. However, this may or may not show up immediately in other line items of Berkshire’s income statement. If Berkshire uses cash to purchase equity securities, the company will receive dividend income as well as potential capital gains over time, but these returns will be irregular and unpredictable. The acquisition of a new subsidiary would be expected to result in reported operating earnings in excess of treasury bill rates over time, but perhaps not immediately. Progressive has not released its annual report for 2024, but we have monthly data releases from which the above table was derived.

Berkshire acquired full ownership of Pilot in early 2024 after a nasty legal dispute with the founding family. I wonder whether Pilot was in Warren Buffett’s mind when he wrote about Berkshire’s mistakes at the beginning of his annual letter. Personally, I find trading unappealing even when it works out well, as it did for me last summer.

Most Recent Annual Report

Berkshire Hathaway does not currently have any hardcopy reports on AnnualReports.com.

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Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. A year ago, Berkshire’s stock rose after the release of the annual report and I wrote Too Clever by Half! But after a subsequent spike in the stock price in late summer, I failed to take my own advice and sold shares in my retirement accounts, thinking that I would owe no taxes on the sale and shares were getting too expensive. A few weeks later, I reversed my decision and wrote a mea culpa, Just Hold the Goddamn Stock! I was fortunate enough to replace my sold shares at a slightly lower price, but I rediscovered that “trading” is not for me. My overall impression is that Berkshire’s cash balance will grow in the coming year unless there is a major market correction that provides attractive opportunities either in the stock market or acquisitions.

Financial Statements

• Berkshire’s businesses are organized into Insurance and Other, Utilities and Energy, and Finance and Financial Products segments.
• However, we should note that the “Other” line item includes $1.1 billion of foreign currency exchange gains related to non-U.S.
• With these adjustments, Berkshire’s cash balance stood at $318 billion at the end of 2024.
• It includes Berkshire’s consolidated balance sheet, showing over $194 billion in total assets including over $162 billion in insurance and other assets, and over $28 billion in finance and financial products assets.
• This was driven by much better insurance underwriting results as well as higher investment income.

There is no law that says that Berkshire will continue to compound at such rates, but in any given year, we can be sure that Berkshire will deliver tens of billions of dollars in after-tax operating income alone, in addition to posting gains on securities on a normalized basis. If Berkshire seems “expensive” today at 1.65x book value, that problem will most likely work itself out in short order as value continues to accrete to owners and management retains all earnings. Warren Buffett stopped focusing on book value several years ago after reporting on that figure for decades. He did so not because he viewed book value as a representation of Berkshire’s intrinsic value, but because he felt that rates of change in book value roughly approximated rates of change in intrinsic value, which he has always said far exceeds book value.

My thoughts on Berkshire’s annual report and Warren Buffett’s letter to shareholders.

As I type this article, such conditions seem quite unlikely, but sentiment can change quickly in financial markets and there is a significant amount of macroeconomic uncertainty regarding taxes, trade policy, and spending. Shareholders should take some solace in the fact that Berkshire continues to earn ~4.25% on its treasury bill portfolio while Mr. Buffett waits for a fat pitch. There was a time when I enthusiastically spent my weekends reading annual reports, but those days are now a distant memory. Every year, I wake up on a Saturday morning in late February to eagerly await the release of Berkshire Hathaway’s annual report.

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Historically, Berkshire has been aggressive in terms of seeking growth for GEICO, but with the caveat that inadequate pricing must be rejected. Berkshire does not provide “guidance” to analysts, but what if we wanted to forecast interest income for 2025? As a result, we cannot realistically forecast interest income for 2025, although I would note that the treasury yield curve currently implies that the Fed will cut rates by around a quarter to half of a percent this year. Assuming premium volume of, say, $44 billion in 2025, GEICO would post underwriting profits of about $3 billion if it runs at a combined ratio of 93%. However, 93% might be optimistic given that Ajit Jain, at the 2023 annual meeting, disclosed that GEICO’s target combined ratio is 96%. However, news articles often provide inaccurate figures because they include cash held by the railroad and utility groups that Warren Buffett has typically not included in his discussions of cash in the past.

Berkshire Hathaway’s 2024 Annual Report

Repurchase activity has ground to a halt and will likely remain suspended given the reaction of the market to Berkshire’s annual report. I would be surprised to see any repurchases unless the stock declines by at least 15% from current levels and we might need a 20% decline, to about $600,000 on the Class A shares, before Mr. Buffett regains his enthusiasm for large repurchases. Fortunately for shareholders who do not want a taxable event, there was no discussion berkshire hathaway annual and interim reports of Berkshire declaring a dividend.