1976 Shareholder Letter

Date: March 21, 1977 Author: Warren Buffett Company: Berkshire Hathaway

Overview

After two dismal years, 1976 delivered a strong recovery with 17.3% return on shareholders' equity and record operating earnings of $16,073,000 ($16.47 per share). The insurance business rebounded dramatically as rate increases finally outpaced cost inflation.

Key Points

Insurance Recovery

"Casualty insurers enjoyed some rebound from the disaster levels of 1975 as rate increases finally outstripped relentless cost increases."

National Indemnity Transformation

"Our overall improvement was even more dramatic, from 115.4 to 98.7."

(Combined ratio: below 100 means underwriting profit)

Key Managers

Buffett credited the results to:

• Phil Liesche — National Indemnity leadership
• Roland Miller — Underwriting
• Bill Lyons — Claims
• John Ringwalt — Home-State operations

Investment Income Milestone

Insurance investment income grew to $10.82 million pre-tax from $8.92 million as invested assets built up substantially.

Capital Gains Realized

"It presently appears that 1977 also will be a year of net realized capital gains. We now have a substantial unrealized gain in our stock portfolio as compared to a substantial unrealized loss several years ago."

Chairman's Cup Winners

Cornhusker Casualty achieved the lowest combined ratio in its history at 94.4% — the fifth time under 100 in six years.

Famous Quotes

"We are unusually concentrated in auto lines where stock companies had an improvement from 113.5 to 107.4."

Related

• letter-1975 — Disaster year
• letter-1977 — Following year
• warren-buffett
• insurance-moat