Berkshire Hathaway 1998 Annual Report Download - page 43

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42
BERKSHIRE HATHAWAY INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net earnings for each of the past three years are disaggregated in the table that follows. Amounts are after
deducting minority interests and taxes.
— (dollars in millions) —
1998 1997 1996
Insurance segments - underwriting ................................. $ 171 $ 298 $ 143
Insurance segments - investment income ............................. 731 704 593
Non-Insurance business segments .................................. 389 311 226
Interest expense ................................................ (63) (67) (57)
Goodwill amortization and other purchase-accounting-adjustments ......... (118) (94) (70)
Other ........................................................ 167 45 49
Earnings before realized investment gain ...................... 1,277 1,197 884
Realized investment gain ......................................... 1,553 704 1,605
Net earnings ........................................... $2,830 $1,901 $2,489
The business segment data (Note 15 to Consolidated Financial Statements) should be read in conjunction with
this discussion.
Insurance Segments — Underwriting
A summary follows of underwriting results from Berkshire’s insurance segments for the past three years.
— (dollars in millions) —
1998 1997 1996
Underwriting gain (loss) attributable to:
GEICO Corporation ............................................ $ 269 $ 281 $ 171
Berkshire Hathaway Reinsurance Group ............................. (21) 128 (8)
Berkshire Hathaway Direct Insurance Group ......................... 17 52 59
Pre-tax underwriting gain .......................................... 265 461 222
Income taxes and minority interest ................................... 94 163 79
Net underwriting gain ...................................... $ 171 $ 298 $ 143
Berkshire Hathaway engages in both direct insurance and reinsurance of property and casualty risks. In direct
insurance activities, Berkshire subsidiaries assume defined portions of the risks of loss from persons or organizations
that are directly subject to the risks. In reinsurance activities, Berkshire subsidiaries assume defined portions of similar
or dissimilar risks that other insurers or reinsurers have subjected themselves to in their own insuring activities.
Berkshire’s principal underwriting bus inesses are: (1) GEICO, which became a wholly owned subsidiary of Berkshire
on January 3, 1996, (2) Berkshire Hathaway Reinsurance Group and (3) Berkshire Hathaway Direct Insurance Group.
On December 21, 1998, Berkshire completed its merger with General Re. General Re and its affiliates comprise one
of the four largest reinsurance companies in the world. See Note 2 to the Consolidated Financial Statements.
A significant marketing strategy followed by all these businesses is the maintenance of extraordinary capital
strength. Statutory surplus as regards policyholders of Berkshire’s insurance businesses increased to approximately
$40 billion (excluding General Re Corporation) at December 31, 1998. This superior capital strength creates
opportunities, especially with respect to reinsurance activities, to negotiate and enter into contracts of insurance
specially designed to meet unique needs of sophisticated insurance and reinsurance buyers. Additional information
regarding Berkshire’s insurance and reinsurance operations is presented on the following pages.