Geico On Pace For Best Quarter For New Business In Two Years

Geico Corp., the car insurer owned by Warren Buffett's Berkshire Hathaway Inc. (BRKA, BRKB), added 188,500 new customers in the first seven weeks of 2011, putting it on pace for its best quarter for new business in two years.

Customers are flocking to Geico as it spends ever-increasing sums on advertising. The company also appeared to be holding the line on prices while some rivals are raising rates in an effort to improve profit margins.

The two U.S. auto insurers larger than Geico, State Farm Mutual Automobile Insurance Co. and Allstate Corp. (ALL), were charging customers more for coverage at the end of 2010 than they were at the beginning. With price increases in 32 states and decreases in 10, State Farm's overall auto insurance rate rose by 2.8% in 2010, a spokesman said. So far in 2011, the company has raised prices in eight states and cut prices in one state.

Geico, meanwhile, was charging its average customer about the same at the end of last year as it did at the start, according to Berkshire's annual report on Saturday.

That pricing trend helped Geico attract 165,000 new policyholders in last year's fourth quarter, and put the company on pace to add about 350,000 drivers by the end of March. That increase would be significantly more than in any three-month period since the first quarter of 2009, when consumers were drastically curtailing their spending amid the depths of the financial crisis.

Halfway through the record-setting first quarter of 2009, Buffett crowed then that he and Geico Chief Executive Tony Nicely felt like "two hungry mosquitoes in a nudist camp. Juicy targets are everywhere."

In his latest letter to shareholders, Buffett said Geico had "enthusiastically" spent $900 million on advertising in 2010 after spending $800 million in 2009. While an exact comparison to the marketing budgets of other insurers is difficult, the figure is likely significantly higher than the next biggest spender.

Geico's underwriting profit jumped 72% to $1.12 billion in 2010, while Allstate's fell 30% to $766 million. State Farm, which is owned by its policyholders, is expected to report 2010 results Tuesday.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com

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