GEICO Annual Underwriting Profits Cut in Half

Annual underwriting profits for GEICO fell 48 percent between 2010 and 2011, according to an annual letter to investors from Warren Buffett, the CEO of Berkshire Hathaway, which owns the direct-to-consumer car insurer.

Underwriting profits were $576 million last year, down from about $1.12 billion the year before.

GEICO logoAn underwriting profit is what’s left of the premiums that were collected by an insurer after subtracting all the operating expenses and claims that it paid out.

Buffett wrote in the annual letter that GEICO has seen an underwriting profit for nine years in a row, which is much better than the track record of many of the country’s other large insurers. As a result, GEICO has gained $17 billion during that period.

“I believe it likely that we will continue to underwrite profitably in most—though certainly not all—future years,” Buffett wrote in the letter. But he also noted that intense competition has made it tough to realize maximum underwriting profit and that there are “a lot of ways to lose money in insurance, and the industry is resourceful in creating new ones.”

GEICO actually ended up doing much better than Berkshire Hathaway’s other insurance operations.

Taken together, underwriting profits for all of those operations ended up dropping by about 87.7 percent, going from $2.01 billion in 2010 to $248 million last year.

Data released this month by the National Association of Insurance Commissioners (NAIC) shows that GEICO has held its position as the third largest car insurer in the nation, behind State Farm and Allstate.

The company wrote about $15.35 billion in premiums, giving it a 9 percent share of the total market.

GEICO’s claim to fame is becoming the largest direct-to-consumer insurer, meaning that customers mostly buy cheap auto insurance online or over the phone from the company without getting an agent involved.

Not having to pay commissions to a whole army of agents significantly cuts GEICO’s overhead when compared with companies like State Farm and Allstate, which rely on agents more heavily.

To research how GEICO performs in claims handling, pricing and other areas, consumers can read user-submitted GEICO auto insurance reviews online.

About John Pirro
John Pirro is a licensed fire and casualty insurance agent specializing in various aspects of the auto insurance industry. He worked in the auto body repair industry before taking a reporting position at Online Auto Insurance News.

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