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Tornado trauma for Berkshire

New York, Nov. 5 (Reuters): Warren Buffett-run Berkshire Hathaway Inc on Friday posted a 48 per cent decline in quarterly profit ' to the lowest level since 2001, hurt by nearly $3 billion of losses from Hurricanes Katrina and Rita.

The company also reduced its stake in foreign currency contracts to $16.5 billion on September 30 from $21.5 billion three months earlier. Buffett has bet against the dollar since 2002 amid concern that high US trade and budget deficits might cause non-US investors to pull money from the country.

Third-quarter net income for Berkshire, whose largest business is insurance, fell to $586 million from $1.14 billion a year earlier.

Excluding investment gains, profit was $106 million, or about $69 per share. Profit was the lowest since Berkshire earned $95 million in the fourth quarter of 2001, in the aftermath of the September 11 attacks.

“Because he’s in the business of insuring catastrophes, Buffett expects to get tagged now and then by a large event,” said Keith Trauner, who helps invest $2.5 billion, including nearly $500 million in Berkshire shares, at Fairholme Capital Management in New Jersey. “It sounds like things were pretty good if you take out the insurance loss.”

Revenue rose 7 per cent to $20.53 billion. Expenses increased 15 per cent to $19.84 billion, including a 40 per cent jump in insurance losses and related expenses.

Berkshire suffered $2.99 billion losses from tornado Katrina and Rita, which struck the US Gulf Coast in August and September, respectively. This included a $118 million at auto insurer Geico, a $602 million at General Re Corp., and a $2.27 billion within the company’s reinsurance group. Berkshire estimated total industry losses from Katrina and Rita at $60 billion to $70 billion.

Net underwriting losses rose more than five-fold to $1.17 billion, while net investment income from insurance rose 24 per cent to $601 million. Insurance-related revenue rose 10 per cent to $6.68 billion.

“We expect very significantly higher prices, higher deductibles and tighter terms and conditions as a result of Katrina,” Trauner said. “For the next one year or two, underwriting results, absent another large catastrophe, should be very, very strong.”

Berkshire’s cash stake fell 4 per cent from the second quarter to $46.03 billion. The company will use some cash for its MidAmerican Energy Holdings Co.’s $5.1-billion purchase of the PacifiCorp utility from Scottish Power Plc.

Berkshire also invests in companies such as Procter & Gamble Co. and expects to recognise a $5-billion pre-tax gain from Procter’s October 1 acquisition of long-time Buffett favourite Gillette Co.

Among Berkshire’s other holdings are Benjamin Moore, Dairy Queen and Fruit of the Loom, which make paint, ice cream and underwear.

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