Berkshire Hathaway, the fund run by investment star Warren Buffett, lost some US$2.5 billion due to Hurricane Katrina, which devastated the US Gulf Coast last August, Buffett said on Saturday.
In a letter to Berkshire's shareholders for its annual meeting, Buffett, 75, also reassured that management of the nearly US$200 billion company would be in good hands "should I die tonight."
He said that Berkshire's board of directors has already unanimously decided on one of three current top managers as his replacement, while remaining flexible enough to change that decision if necessary.
Buffett, however, did not name the replacement.
Buffett, legendary among US investors for his market acumen and his down-home wisdom, reported that overall Berkshire earned US$8.5 billion last year, up from US$7.3 billion the previous year, as its assets rose to an audited US$198.3 billion at the end of last year from US$188.9 billion in 2004.
The firm is a major investor in top companies such as Coca-Cola, American Express and Gillette.
Buffet said Berkshire's insurance holdings made money overall even as they lost US$2.5 billion to Katrina and another US$900 million to Hurricanes Rita and Wilma, all of which wreaked havoc along the coast of the Gulf of Mexico late last year.
"Berkshire had a decent year in 2005. We initiated five acquisitions [two of which have yet to close] and most of our operating subsidiaries prospered. Even our insurance business in its entirety did well, though Hurricane Katrina inflicted record losses on both Berkshire and the industry," he said in his letter.
Buffett also said the company lost US$104 million last year on a derivatives operation, Gen Re Securities, that has cost it a total of US$404 million.
Buffet said Berkshire is getting out of the derivatives business, comparing the risks to carrying a cat by its tail.
He warned that the derivatives industry poses risks for the whole economy.
"In a sense, we are a canary in this business coal mine and should sing a song of warning as we expire. The number and value of derivative contracts outstanding in the world continues to mushroom and is now a multiple of what existed in 1998, the last time that financial chaos erupted," he said.
"Our experience should be particularly sobering because we were a better-than-average candidate to exit gracefully," he said.
Buffett, whose name is intimately tied to Berkshire's strong investment record, stressed that the company will be in good hands if he dies.
He also said that when he begins to lose his own business touch, the board is compelled to force him into retirement.
"The other question that must be addressed is whether the board will be prepared to make a change if that need should arise not from my death but rather from my decay, particularly if this decay is accompanied by my delusionally thinking that I am reaching new peaks of managerial brilliance," he said.
"Some managers remain effective well into their 80s others noticeably fade in their 60s. When their abilities ebb, so usually do their powers of self-assessment," Buffett said.
"When that time comes for me, our board will have to step up to the job. From a financial standpoint, its members are unusually motivated to do so," he said.
However, Buffet added, "I feel terrific."
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