How COVID-19 is affecting Berkshire’s operations

Like many other U.S. businesses, Berkshire Hathaway’s (NYSE:BRK.B) (NYSE:BRK.A) Q1 was shaping up as a good quarter, until the COVID-19 pandemic hit in mid-March.

“As efforts to contain the spread of the COVID-19 pandemic accelerated in the second half of March and continued through April, most of our businesses were negatively affected, with the effects to date ranging from relatively minor to severe,” the company said in its 10-Q.

Though a number of its businesses are deemed essential — including its railroad, utilities and energy, insurance, and certain of its manufacturing, distribution and service businesses — their revenue slowed “considerably in April.”

Several of its retailing businesses and some manufacturing businesses are being “severely impacted” from closures due to social distancing guidelines.

To mitigate the economic losses caused by lower consumer demand for products and services, Berkshire has implemented temporary furloughs, wage and salary reductions, capital spending reductions and other actions to preserve capital and liquidity.

Its insurance underwriting operations were hurt by estimated losses and costs associated with COVID-19, including estimated provisions for claims and uncollectible premiums and incremental operating coasts to maintain customer service levels.

The underwriting business may be further affected by judicial rulings and regulatory and legislative actions pertaining to insurance coverage and claims that the company can’t reasonably estimate yet.

Expects 2020 underwriting results will be affected by lower premiums for certain business attributable to premium credits granted to policyholders and when premiums are a function of the insured’s payroll.

Geico estimates total premium credits of $2.5B for its giveback program with recognizes the pandemic’s impact on policyholders as well as lower loss frequencies due to shelter-in-place orders.

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