Berkshire net off 64 percent on derivatives, insurance

By Jonathan Stempel

OMAHA, Nebraska (Reuters) - Warren Buffett's Berkshire Hathaway Inc (BRKa.N: Quote, Profile, Research, Stock Buzz)(BRKb.N: Quote, Profile, Research, Stock Buzz) said on Friday that first- quarter profit tumbled 64 percent, hurt by losses tied to derivatives contracts and a steep slide in insurance premiums.

Net income for the Omaha, Nebraska-based insurance and investment company fell to $940 million, or $607 per Class A share, from $2.6 billion, or $1,682, a year earlier.

Operating profit fell 13 percent to $1.93 billion, or $1,247 per share, from $2.21 billion, or $1,434. On that basis, analysts on average expected profit of $1,477 per share, according to Reuters Estimates. Revenue tumbled 24 percent to $25.18 billion.

Results suffered from $991 million of after-tax losses tied mainly to contracts designed to make money if junk bond stay out of default and stock indexes rise. Buffett had warned in his annual letter to shareholders in February that derivatives could make quarterly results volatile.

Meanwhile, insurance underwriting profit fell 70 percent to $181 million, and earned premiums sank 54 percent to $6.21 billion. Berkshire had been able to boost insurance premiums following Hurricane Katrina in 2005, but Buffett said prices and profit margins have since fallen.

"When people see these derivatives numbers, they may be concerned, but Buffett gets his cash up front, so I'm not concerned about balance sheet integrity," said Thomas Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania, which invests more than $3 billion. "I'm not surprised at the insurance decline. Berkshire has a culture in which it will stop writing business it doesn't want."

In Friday trading, Berkshire's Class A shares fell $300 to $133,600, while its Class B shares fell $12 to $4,448.

BUFFETT HAD WARNED OF DECLINE