Berkshire Hathaway’s 2024 Annual Report: A Closer Look at GEICO’s Performance
Berkshire Hathaway’s 2024 annual report has sent waves through the insurance industry, highlighting significant improvements in GEICO’s performance. Under the leadership of CEO Todd Combs, GEICO has experienced a remarkable turnaround, which was notably acknowledged by Warren Buffett in his report to shareholders.
GEICO’s Impressive Underwriting Profit Increase
In 2024, GEICO reported a staggering increase in underwriting profit, reaching over $7.8 billion before taxes. This marks a significant rise from the $3.6 billion recorded in 2023 and a dramatic recovery from the nearly $2 billion loss in 2022. This impressive performance contributed to Berkshire Hathaway’s overall operating income, which soared to $47.4 billion after taxes—an increase of $10 billion or 27% from the previous year.
Factors Driving GEICO’s Success
The Management’s Discussion and Analysis (MD&A) section of the report attributes GEICO’s success to several key factors:
- Higher Average Premiums: The increase in average premiums per policy has played a crucial role in boosting underwriting earnings.
- Improved Operating Efficiencies: GEICO’s efforts to modernize its underwriting practices and enhance efficiency have positively impacted its financial performance.
Despite these improvements, it’s important to note that the expense ratio remained unchanged at 9.7% for both 2023 and 2024. However, the loss and loss adjustment expense ratio saw a favorable shift to 71.8%, a significant improvement compared to prior years.
Staffing Changes and Policies in Force
While GEICO did not implement drastic staffing cuts in 2024, the company’s workforce now stands at 28,247 employees, a notable decline from its peak of 42,156 in 2020. This reduction reflects a broader trend within the company, which has seen a decrease in policies in force (PIF). In 2024, GEICO’s PIF count was 0.5% lower than at the end of 2023, although this decline was significantly less than the nearly 10% drop reported in the previous year.
Comparative Performance Against Competitors
While GEICO experienced a slight decline in policies, competitors like Progressive Insurance reported a robust growth of over 20% in both policies and net written premiums in 2024. This contrasting performance highlights the challenges GEICO faces in an increasingly competitive market.
Insurance Pricing and Catastrophe Losses
Warren Buffett noted that insurance pricing strengthened throughout 2024, driven by an increase in damages from convective storms. Despite the absence of a major catastrophic event, GEICO faced $360 million in losses from Hurricanes Helene and Milton, along with additional losses from Berkshire’s other primary insurance operations.
Buffett emphasized the importance of prudent pricing strategies to absorb potential losses, particularly in light of the ongoing impacts of climate change.
Addressing Social Inflation
This year’s report also provided a more direct reference to social inflation, particularly in the context of Berkshire Hathaway Primary Group, which reported a decline in underwriting profits. The increase in loss estimates and rising litigation costs have been challenging for the insurance sector as a whole.
Berkshire Hathaway’s Insurance and Reinsurance Outlook
Despite these challenges, Buffett remains optimistic about Berkshire Hathaway’s insurance and reinsurance operations. He highlighted the company’s ability to handle extreme losses without significant strain, a key advantage in the unpredictable world of insurance. In 2024, Berkshire’s property/casualty reinsurance operations posted $3.8 billion in underwriting profits, showcasing the resilience of the business model.
Final Thoughts
Berkshire Hathaway’s 2024 annual report underscores the significant strides made by GEICO under Todd Combs’ leadership. With a remarkable recovery in underwriting profits and a focus on enhancing operational efficiencies, GEICO is well-positioned to navigate the challenges of the insurance landscape. As the company continues to adapt and evolve, it remains a key player within Berkshire Hathaway’s diverse portfolio.
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