Berkshire Hathaway 1998 Annual Report Download - page 35

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Notes to Consolidated Financial Statements (Continued)
(6) Finance and financial products businesses (Continued)
With respect to Berkshire’s life insurance business, annuity reserves and policy holder liabilities are carried at the present
value of the actuarially determined ultimate payment amounts discounted at market interest rates existing at the inception
of the contracts. Periodic accretions of the discounted liabilities are charged against income from finance and financial
products businesses.
Investments in securities with fixed maturities held by Berkshire’s life insurance business are classified as held-to -
maturity. Investments classified as held-to-maturity are carried at amortized cost reflecting the company’s ability and intent
to hold such investments to maturity. Such items consist predominantly of mortgage loans and collateralized mortgage
obligations.
(7) Unpaid losses and loss adjustment expenses
Supplemental data with respect to unpaid losses and loss adjustment expenses of property/casualty insurance subsidiaries
(in millions) is as follows:
1998 1997 1996
Unpaid losses and loss adjustment expenses:
Balance at beginning of year ...................................... $6,850 $6,274 $5,924
Less ceded liabilities and deferred charges ........................... 754 586 645
Net balance ................................................... 6,096 5,688 5,279
Incurred losses recorded:
Current accident year ........................................... 4,235 3,551 3,179
All prior accident years .......................................... (195) (131) (90)
Total incurred losses ............................................ 4,040 3,420 3,089
Payments with respect to:
Current accident year ........................................... 1,919 1,602 1,485
All prior accident years .......................................... 1,834 1,410 1,195
Total payments ................................................ 3,753 3,012 2,680
Unpaid losses and loss adjustment expenses:
Net balance at end of year ........................................ 6,383 6,096 5,688
Ceded liabilities and deferred charges ............................... 2,727 754 586
Net liabilities assumed in connection with General Re Merger ............ 13,902 — —
Balance at end of year ............................................ $23,012 $6,850 $6,274
Incurred losses “all prior accident years” reflects the amount of estimation error charged or credited to earnings in each
year with respect to the liabilities established as of the beginning of that year. This amount includes amortization of deferred
charges re reinsurance and accretion of discounted liabilities. See Note 1 for additional information regarding these items.
Additional information regarding incurred losses will be revealed over time and the estimates will be revised
resulting in gains or losses in the periods made.
The balances of unpaid losses and loss adjustment expenses are based upon estimates of the ultimate claim costs
associated with claim occurrences as of the balance sheet dates. Considerable judgement is required to evaluate claims and
establish estimated claim liabilities, particularly with respect to certain lines of business, such as reinsurance assumed, or
certain types of claims, such as environmental or latent injury liabilities.
The Company continuously evaluates its liabilities and related reinsurance recoverable for environmental and latent
injury claims and claim expenses, which arise from exposures in the U.S., as well as internationally. Environmental and
latent injury exposures do not lend themselves to traditional methods of loss development determination and therefore