Insurance Center

The financial situation of Warren Buffet’s Berkshire Hathaway enterprises has been coming into question due to the changing financial times. It is noted by the industry that Berkshire Hathaway in addition to its falling stock price, has other exposures to the present falling markets.

The company ended up in September with $76 billion in a variety of stock investments. These included a multibillion dollar stake in several concerns including ConocoPhillips, Procter & Gamble Company, American Express Company, Coca-Cola Company, and Wells Fargo & Company. Shares in all of these companies have fallen during the last quarter.

At the same time, investors have discounted Berkshire's investment of over $8 billion in the preferred shares of General Electric Co and Goldman Sachs Group Inc, by considering their 10 percent dividend yields. Meanwhile, the shares of both companies have dropped, making for the time being, Buffett's warrants to buy common shares of no or little value.

This is not the first time that Buffett has been out of step with the markets. He gave himself a "D" for capital allocation in 1999, after missing the late 1990s tech bubble. At this time Berkshire's book value barely budged, while the S&P 500, including dividends, rose by 21 percent. Berkshire did a better job in six of the following eight years.

Given the worldwide economic downturn, T2 Partners Tilson says that earnings of Berkshire's operating businesses will without doubt drop. He adds however, that these businesses remain extremely profitable, and will almost certainly continue into the foreseeable future.
Since we now have, at least in part, a situation where many insurance rivals are scrambling for capital, Schiff, a writer for the Insurance Observer, expects Buffett will be actually looking for and finding new opportunities to win business or to make acquisitions. In order to be eligible for the government's $700 billion financial rescue bailout, several businesses are applying to become bank holding companies.
It is an established precedence that when insurers lose capital, the tendency is for them to act more conservatively with regard to the amount of business that they write, says Schiff. Because relative to other businesses, Berkshire’s balance sheet is so strong, it doesn't seem to be having this problem. As Schiff puts it, what they own at the present time may appear to be of little worth, but they have available to them more opportunities to buy things at cheaper prices.