Warren Buffett's insurance and investment company Berkshire Hathaway Inc has reported a 64 per cent fall in first quarter (Jan-March 2008) net profit, due mainly to losses in derivatives contracts and a steep fall in insurance premiums.

Net income fell to $940 million, or $607 per class A share, from $2.6 billion, or $1,682, a year earlier. Operating profit fell 13 per cent to $1.93 billion, or $1,247 per share, from $2.21 billion, or $1,434. Revenue fell 24 per cent to $25.18 billion.

The company attributed the fall in profits to a $991 million after-tax losses tied to junk bond and stock index derivatives. Insurance underwriting profit fell 70 per cent to $181 million, and earned premiums dropped 54 per cent to $6.21 billion.

Berkshire said it made a $1.2 billion pre-tax loss on put options it wrote on the Standard & Poor's 500 and other stock indexes. It also lost $490 million on contracts on some high-yield bonds.

Berkshire ended 2007 with $40 billion of exposure to 94 derivative contracts.

Berkshire's Class A shares fell $300 to $133,600, while its Class B shares fell $12 to $4,448 on Friday.

Buffett had, in his annual letter to shareholders, warned that derivatives could make quarterly results volatile.

The exposure comes despite Buffett admitting in his earlier letter to shareholders in 2003 calling derivatives "financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."

Pre-tax underwriting gains at auto insurer Geico Corp fell 37 per cent to $186 million, as the average claim size increased and average premium per policy fell. They rose 40 per cent to $42 million at General Re Corp. Gains at Hathaway's Reinsurance Group tumbled 95 per cent to $29 million.

Net income from utilities and energy rose 8 per cent to $316 million, while income from manufacturing and retailing businesses rose 9 per cent to $487 million.

Buffett has transformed Berkshire since 1965 into a $207 billion conglomerate through investments in stocks and acquisition of companies with strong earnings and management.

The company also invests in stocks such as American Express Co, Coca-Cola Co, Procter & Gamble Co and Wells Fargo & Co.

For the quarter under review, Berkshire Hathway bought about $72.56 billion of stocks and $38.64 billion of bonds. Berkshire, meanwhile, completed its $4.5 billion acquisition of a 60 per cent stake in energy and construction products company Marmon Holdings Inc. Buffet also committed $6.5 billion to fund Mars Inc's purchase of chewing gum maker Wm Wrigley.

The book value of  the Omaha, Nebraska-based company fell to $119.37 billion from $120.73 billion as of end-2007.