Buffett Warns Insurance Business May Get Tougher

--Berkshire posted an 18% drop in fourth-quarter net income on lower investment gains and a drop in insurance-underwriting fees. "It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008," he wrote. --The Omaha, Neb., investment holding company said the quarter's $597 million in investment gains compares with $715 million a year earlier. --Expanding on his view that insurance-industry profit margins will fall in 2008, Mr. Buffett said: "Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by four percentage points or so. ... So be prepared for lower insurance earnings during the next few years." --"As house prices fall, a huge amount of financial folly is being exposed," Mr. Buffett, 77 years old, wrote. "You only learn who has been swimming naked when the tide goes out -- and what we are witnessing at some of our largest financial institutions is an ugly sight." --"In developing a sensible trade policy, the U.S. should not single out countries to punish or industries to protect. Nor should we take actions likely to evoke retaliatory behavior that will reduce America's exports, true trade that benefits both our country and the rest of the world," he wrote. "Our legislators should recognize, however, that the current imbalances are unsustainable and should therefore adopt policies that will materially reduce them sooner rather than later. Otherwise our $2 billion daily of force-fed dollars to the rest of the world may produce global indigestion of an unpleasant sort."