Buffett cites growing hurricane wariness, hikes rates

Singapore (Platts)--6Mar2006

Reinsurance subsidiaries of Warren Buffett's New York-listed Berkshire
Hathaway will raise prices dramatically this year for mega-cat reinsurance
policies covering potential storm damage during the upcoming US Gulf of Mexico
hurricane season.

     What's more, Buffett's companies may reduce their total exposure to
regional hurricane risk if prices are too low, Buffett, the world's second
richest man, wrote in the 2005 edition of his widely read annual letter to
shareholders, released Saturday.

     "We've concluded that we should now write mega-cat policies only at
prices far higher than prevailing last year -- and then only with an aggregate
exposure that would not cause us distress if shifts in some important variable
produce far more costly storms in the near future," Buffett wrote.

     "To a lesser degree, we felt this way after 2004 -- and cut back our
writings when prices didn't move. Now our caution has intensified. If prices
seem appropriate, however, we continue to have both the ability and the
appetite to be the highest writer of mega-cat coverage in the world," he
wrote.

     "It's an open question whether atmospheric, oceanic or other causal
factors have dramatically changed the frequency or intensity of hurricanes.
Recent experience is worrisome."

     Buffett described the cautious view in a letter noting that Hurricane
Katrina had cost Berkshire's insurance arms about $2.5 billion, and
that "ugly sisters" Rita and Wilma had cost another $900 million in 2005. 

     Nevertheless, Berkshire Hathaway's total insurance activities were net
profitable as the hurricane-related losses were more than offset by gains in
other insurance lines, including US auto insurance.

     PIPELINE PROFITS CLIMB, BUFFETT HUNTS UTILITIES

     Meanwhile, Berkshire's 80.5% held MidAmerican Energy Holdings, whose
Northern Natural Gas owns and operates a 16,500 mile (26,600 mile), 4.5
billion cubic feet/day natural gas pipeline running from the Permian basin in
Texas to the US upper Midwest, generated around $309 million in profits from
pipeline operations in 2005, up 7.3% from $288 million in 2004.

     Following MidAmerica's May 2005 agreement to pay $9.4 billion for US west
coast natural gas and electric utility Pacificorp, Buffett remains on the hunt
for utility acquisitions.

     "A few years back, I said that we hoped to make some very large purchases
in the utility field. Note the plural -- we'll be looking for more," Buffett
wrote.

     "You can't expect to earn outsized profits in regulated utilities, but
the industry offers owners the opportunity to deploy large sums at fair
returns -- and therefore, it makes good sense for Berkshire," he added.

     As for the Pacificorp deal, Berkshire has obtained the necessary
regulatory clearances and expects to close the deal soon, according to
Buffett.

     Among Berkshire Hathaway's various manufacturing companies, most have
been hit by rising costs for energy and raw materials. "Most of these
operations are significant users of oil [or more specifically, petrochemicals]
and natural gas. And prices for these commodities have soared."

     Still, Berkshire manufacturers have passed on most of those higher costs
in the form of higher prices, although the higher prices have often lagged the
increase in raw material costs, Buffett wrote.

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