Berkshire Hathaway is outperforming in turmoil, but Geico is in trouble
Berkshire Hathaway shareholders attending this year's meeting will want to know more about the company Warren Buffett once called his "favorite child" – the auto insurer Geico.
With tens of thousands of shareholders in attendance, Berkshire's annual "Woodstock for Capitalists" will be held in Omaha, Nebraska on Saturday, the second in-person gathering since 2019. (CNBC's exclusive coverage of the event starts that day at 10 a.m. ET.)
Geico, viewed as the crown jewel of Berkshire's insurance empire, has found itself in a bit of a trouble recently after losing market share to its best competitor Progressive in 2022 with a widening gap in underwriting margins and growth, according to an analysis from UBS. Geico suffered a $1.9 billion pre-tax underwriting loss last year.
"I think it's the biggest issue out there at the moment is really Geico," said Bill Stone, chief investment officer at Glenview Trust and a Berkshire shareholder. "They've lost out to Progressive, who did a better job of implementing telematics... I'm certainly interested in a big update on that."
Telematics programs allow insurers to collect clients' driving data, including their mileage and speed.
Headquartered in Chevy Chase, Maryland with more than 38,000 employees, Geico also experienced a 1.7 million decrease in active policies in 2022, after seeing stagnant growth in the previous year.
Ajit Jain, Berkshire's vice chairman of insurance operations, said the biggest culprit for Geico's underperformance is telematics.
"Progressive has been on the telematics bandwagon for … probably closer to 20 years. Geico, until recently, wasn't involved in telematics," Jain said at Berkshire's 2022 meeting. "It's been only the last two years that they've made a very serious effort, in terms of using telematics for segmentation and for trying to match rate and risk."
Geico represents one area of weakness for Berkshire, which overall has been beating the broader market. Berkshire A shares hit a 52-week high Monday, briefly topping $500,000 again. The stock is up nearly 5% over the past month, while the S&P 500 has fallen roughly 0.6% amid the regional banking crisis.
The conglomerate tends to shine in a down market as many use it for downside protection given its diverse businesses and unmatched balance sheet strength.
Source: CNBC
