Andrew Bary

Berkshire Hathaway manager Todd Combs appears to have borrowed from Elon Musk's cost-cutting playbook in his turnaround efforts at auto insurer Geico, which had record underwriting profits in 2024.

Berkshire's Geico unit, the No. 3 auto insurer in the U.S. behind State Farm and Progressive, has cut its head count by over 30% since the end of 2021 to about 28,000 employees, according to Berkshire's annual report released Saturday. Over that span, it slashed its annual operating expenses by 24% to $4.1 billion based on 2024 figures in the annual. Revenues are up 13% in that period.

Musk made even deeper cuts at Twitter, now X, after buying the company in 2022, and X now is more profitable than it was when Musk bought it despite lower revenues, according to published reports. Musk is now trying to slash federal government spending with his (Department of Government Efficiency) DOGE project under President Donald Trump.

Combs, who has managed part of Berkshire's $300 billion equity portfolio for more than a decade, was tapped by Berkshire CEO Warren Buffett to run Geico at the end of 2019.

Buffett said at the time that Combs wouldn't be there long but the job proved more extensive than initially imagined due in part to Geico's antiquated technology that was hindering it competitiveness relative to the auto insurance industry's tech leader, Progressive.

Combs' efforts have panned out. Geico had record underwriting profits of $7.8 billion in 2024, more than double the 2023 total.

Buffett pronounced the efforts a success in his 2024 annual letter released on Saturday.

"In five years, Todd Combs has reshaped Geico in a major way, increasing efficiency and bringing underwriting practices up to date. 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," Buffett wrote.

Combs had a tall order given Geico's antiquated systems -- a situation described by Berkshire's senior insurance executive Ajit Jain at the 2023 Berkshire annual meeting:

"GEICO's technology needs a lot more work than I thought it did. It has more than 500 -- actually, more than 600 legacy systems that don't really talk to each other. And we are trying to compress them to no more than 15, 16 systems that all talk to each other. That's a monumental challenge."

Geico didn't release its auto insurance policies in force for year-end 2024 but they are believed to be in the 16 million to 17 million range, down about 20% in recent years. Geico's market share has shrunk to an estimated 12% from 14% while Progressive's has risen to more than 15% from 12%.

Berkshire said Geico's policies in force rose in the second half of 2024 but didn't give a number and analysts expect growth in 2025.

Geico's operating expense as a percentage of revenues was under 10% during 2024, roughly half that of Progressive. The expense ratio was around 11% in the fourth quarter and could rise in 2025 as the company increases ad expenditures.

"We've driven our underwriting expense ratio below 10% and there's just very, very, very few companies that can compete with us," Buffett said at the 2024 annual meeting.

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

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February 25, 2025 02:00 ET (07:00 GMT)

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