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DJ Berkshire's Geico Unit Struggles Despite Turnaround; Its Profitability Trails Progressive -- Barrons.com

By Andrew Bary

Berkshire Hathaway's Geico auto-insurance unit remains a work in progress with worse underwriting results than peers after nearly seven years of a turnaround strategy.

The auto insurer had long been a bright spot for Berkshire. Geico's low operating expenses as a direct underwriter of auto insurance (meaning no agent) helped give it a pricing advantage that allowed it to grow much faster than peers. But as technology became more important in auto insurance underwriting, Geico fell behind.

Geico, the country's No. three auto insurer behind Progressive and State Farm, reported results Saturday along with the rest of Berkshire's operating units.

Geico is one of the most important divisions in Berkshire's large property and casualty insurance franchise that also includes a big reinsurer. Geico is expected to generate $45 billion or premiums this year, about half the total revenue at Berkshire's insurance operation.

Former Berkshire CEO Warren Buffett installed Todd Combs, an investment manager, as CEO of Geico at the start of 2020 and charged him with fixing the insurer. Geico had underinvested in technology and found itself behind peers in its ability to segment customers, price policies and handle claims.

Geico consolidated over a hundred technology systems and substantially cut staff as it moved toward higher profitability in 2024. Geico's head count stood at about 28,000 at the end of 2024, down 30% from 41,000 at the end of 2021. Geico added about a thousand employees last year, according to figures in the Berkshire annual report.

In his annual shareholder letter in early 2025, Buffett wrote that much progress had been made. "Geico was a long-held gem that needed major repolishing, and Todd has worked tirelessly in getting the job done. Though not yet complete, the 2024 improvement was spectacular." Combs left Berkshire at the end of 2025 to take an investment job at JPMorgan.

It appears that even with the improvement at Geico, more work needs to be done.

A key profit measure for property and casualty insurers is the combined ratio, which measures losses and expenses as a percentage of premiums. A lower number is better.

Geico had an underlying combined ratio of 95.5% in the third quarter adjusting for reserve releases, according to UBS analyst Brian Meredith. The profit margin can be computed by subtracting the combined ratio from 100. In the case of Geico, it would be 4.5%, or 100 minus 95.5. The reserve releases -- or favorable development in industry parlance -- came about because Geico previously overestimated claims.

Favorable or unfavorable reserve development is common in the P&C insurance business since claims are estimated at the time policies are bought -- meaning that actual results can differ from initial projections. Analysts tend to view reserve releases as one-time events and strip out the releases to determine core underwriting performance. Insurers aim to generate an underwriting profit and augment that with investment income.

Geico's combined ratio in the third quarter adjusted for the reserve release rose eight percentage points from the prior year and was about three percentage points above Meredith's estimate. Once again, higher is bad in this metric.

Progressive, probably the best-managed auto insurer, had a combined ratio of less than 90% in the third quarter, and so did Allstate, a major auto insurer.

Market conditions have gotten worse this year for auto insurers after several years in which sharply higher premiums led to outsize underwriting profits. Pricing is now declining in many areas of the country and has declined about 5% over the past year, according to the consumer price report.

That is putting pressure on premiums at a time when loss expenses continue to rise due to in part to the higher cost of repairing cars.

"Geico is being squeezed on both ends. What appears to be emerging is a book of business that is experiencing a claims deterioration in both frequency and severity of claims," CFRA analyst Cathy Seifert wrote Barron's in an email.

"Though still profitable -- GEICO's results seem to be deteriorating worse than many peers. A more competitive pricing environment is adding to these pressures since it makes it harder for Geico to raise rates/prices to offset the underwriting deterioration."

Geico has lost considerable market share to Progressive, which at the start of the decade was No. 3 in premium revenue, behind leader State Farm and No. 2 Geico.

Progressive now is way ahead of Geico as it uses its underwriting advantage -- including the use of real-time driving information from policyholders -- to better price policies than rivals. Progressive has grown rapidly in recent years.

Progressive's nine-month auto insurance revenue was $56 billion, against $34 billion for Geico. And Progressive's revenue were up 5% ahead of Geico at 1% over that span.

Berkshire provides more limited disclosure on Geico than does Progressive. Geico didn't disclose its number of auto policies in the Berkshire third-quarter 10-Q other than to say they continued to rise. Progressive disclosed that its auto policy count was about 28 million. Geico last updated its policy count in 2019 when it stood at 17 million.

The current total is believed to be not much changed from that 17 million figure.

Former Berkshire vice chairman Charlie Munger remarked before his death in 2023 that even if Geico had fallen behind Progressive, being No. 2 to Progressive was still a good position given Geico's expense advantage as a direct underwriter.

That seems to be the view in the investment community. UBS's Meredith took a more upbeat view on Geico after the Berkshire results Saturday.

"We expect more underlying margin deterioration in 2026/27 as rate cuts persist and expense ratio rises from additional ad spend and commissions paid to agents as it grows its independent agent footprint. That said, we expect these expenditures to also improve growth, and Geico to regain market share."

The travails at Geico haven't diminished investor enthusiasm for Berkshire stock. The Class A shares are down 1% Wednesday to $866,294, but have risen 12% in the past month as investors have gravitated toward a defensive Berkshire in a more rocky stock market.

The stock has recently hit new highs and is up about 15% for the year, ahead of the S&P 500 by three percentage points. One of Berkshire's advantages is the wide diversification of its businesses. So if one is underperforming, the overall impact isn't significant. Geico is a relatively small part of Berkshire and other divisions are doing well including Berkshire's BNSF railroad business.

Write to Andrew Bary at andrew.bary@barrons.com