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How Crucial Are Managing Losses and LAE to Berkshire's Profitability?
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Key Takeaways
Berkshire's insurance arms drive growth through effective management of losses and LAE.
GEICO faces inflationary claims and catastrophe costs, which put pressure on underwriting results.
BRK.B stock is up 9.2% YTD. The consensus estimate for 2025 EPS indicates a year-over-year decline.
Berkshire Hathaway’s (BRK.B - Free Report) insurance operations serve as the cornerstone of its business model and remain a key growth engine. GEICO, Berkshire Hathaway Reinsurance Group, and Berkshire Hathaway Primary Group are the pillars of its business. These derive profitability largely from how effectively they manage losses and loss adjustment expenses (LAE).
Losses and LAE are the most critical drivers of underwriting performance, as they constitute both claim payments and settlement costs. Since Berkshire’s insurance subsidiaries provide not only underwriting income but also valuable float, disciplined management of losses and LAE directly impacts both near-term earnings and long-term compounding capacity.
When losses and LAE are well controlled, Berkshire delivers underwriting profits while generating float that can be reinvested across its vast investment portfolio, creating amplified value over time. However, rising losses from catastrophes, inflationary pressure and adverse development can erode underwriting margins and weigh on float. To counter such risks, insurers typically expand writing in hard markets where pricing better compensates for expected losses.
Although Berkshire has remained profitable, challenges such as higher auto repair costs at GEICO, inflationary claims and elevated catastrophe exposures have dampened results. Even then, its diversified conglomerate model enables it to withstand volatility better than most peers. Thus, losses and LAE, which have gone down in the last two years, are not just a cost item but an important driver of BRK.B’s profitability. Effective management strengthens underwriting results, supports float stability, fuels investment firepower and sustains Berkshire’s long-term intrinsic value growth.
What About BRK.B’s Peers?
Losses and LAE are central to Progressive Corporation’s (PGR - Free Report) underwriting profitability as well. As an auto insurer, Progressive faces high claims frequency, making disciplined management of losses and LAE vital to pricing accuracy and margins. When Progressive effectively controls these costs, it drives underwriting gains, maintains competitive pricing, and secures sustainable long-term growth.
The same holds true for Allstate Corporation (ALL - Free Report) . As a top personal lines insurer, Allstate depends on controlling claims frequency, severity and settlement costs to sustain profitability. When Allstate manages these effectively, it strengthens underwriting margins, ensures earnings stability and secures long-term value creation for shareholders.
BRK.B’s Price Performance
Shares of BRK.B have gained 9.2% year to date, outperforming the industry.
Image Source: Zacks Investment Research
BRK.B’s Expensive Valuation
BRK.B trades at a price-to-book value ratio of 1.6, above the industry average of 1.56. It carries a Value Score of D.
Image Source: Zacks Investment Research
Estimate Movement for BRK.B
The Zacks Consensus Estimate for BRK.B’s third-quarter 2025 EPS has witnessed no movement over the past 30 days, while that for the fourth quarter has moved 14.1% higher in the same period. The consensus estimates for full-year 2025 and 2026 EPS have moved 1.1% and 2.8% south, respectively, over the past 30 days.
Image Source: Zacks Investment Research
The consensus estimates for BRK.B’s 2025 and 2026 revenues indicate year-over-year increases. While the consensus estimate for BRK.B’s 2025 EPS indicates a year-over-year decline, the same for 2026 suggests an increase.
Image: Shutterstock
How Crucial Are Managing Losses and LAE to Berkshire's Profitability?
Key Takeaways
Berkshire Hathaway’s (BRK.B - Free Report) insurance operations serve as the cornerstone of its business model and remain a key growth engine. GEICO, Berkshire Hathaway Reinsurance Group, and Berkshire Hathaway Primary Group are the pillars of its business. These derive profitability largely from how effectively they manage losses and loss adjustment expenses (LAE).
Losses and LAE are the most critical drivers of underwriting performance, as they constitute both claim payments and settlement costs. Since Berkshire’s insurance subsidiaries provide not only underwriting income but also valuable float, disciplined management of losses and LAE directly impacts both near-term earnings and long-term compounding capacity.
When losses and LAE are well controlled, Berkshire delivers underwriting profits while generating float that can be reinvested across its vast investment portfolio, creating amplified value over time. However, rising losses from catastrophes, inflationary pressure and adverse development can erode underwriting margins and weigh on float. To counter such risks, insurers typically expand writing in hard markets where pricing better compensates for expected losses.
Although Berkshire has remained profitable, challenges such as higher auto repair costs at GEICO, inflationary claims and elevated catastrophe exposures have dampened results. Even then, its diversified conglomerate model enables it to withstand volatility better than most peers.
Thus, losses and LAE, which have gone down in the last two years, are not just a cost item but an important driver of BRK.B’s profitability. Effective management strengthens underwriting results, supports float stability, fuels investment firepower and sustains Berkshire’s long-term intrinsic value growth.
What About BRK.B’s Peers?
Losses and LAE are central to Progressive Corporation’s (PGR - Free Report) underwriting profitability as well. As an auto insurer, Progressive faces high claims frequency, making disciplined management of losses and LAE vital to pricing accuracy and margins. When Progressive effectively controls these costs, it drives underwriting gains, maintains competitive pricing, and secures sustainable long-term growth.
The same holds true for Allstate Corporation (ALL - Free Report) . As a top personal lines insurer, Allstate depends on controlling claims frequency, severity and settlement costs to sustain profitability. When Allstate manages these effectively, it strengthens underwriting margins, ensures earnings stability and secures long-term value creation for shareholders.
BRK.B’s Price Performance
Shares of BRK.B have gained 9.2% year to date, outperforming the industry.
Image Source: Zacks Investment Research
BRK.B’s Expensive Valuation
BRK.B trades at a price-to-book value ratio of 1.6, above the industry average of 1.56. It carries a Value Score of D.
Image Source: Zacks Investment Research
Estimate Movement for BRK.B
The Zacks Consensus Estimate for BRK.B’s third-quarter 2025 EPS has witnessed no movement over the past 30 days, while that for the fourth quarter has moved 14.1% higher in the same period. The consensus estimates for full-year 2025 and 2026 EPS have moved 1.1% and 2.8% south, respectively, over the past 30 days.
Image Source: Zacks Investment Research
The consensus estimates for BRK.B’s 2025 and 2026 revenues indicate year-over-year increases. While the consensus estimate for BRK.B’s 2025 EPS indicates a year-over-year decline, the same for 2026 suggests an increase.
BRK.B stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.