Berkshire Hathaway 2000 Annual Report Download - page 58

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Interest Rate Risk (Continued)
The fair values of Berkshire's fixed maturity investments and borrowings under investment agreements
and other debt will fluctuate in response to changes in market interest rates. Increases and decreases in prevailing
interest rates generally translate into decreases and increases in fair values of those instruments. Additionally, fair
values of interest rate sensitive instruments may be affected by the credit worthiness of the issuer, prepayment
options, relative values of alternative investments, the liquidity of the instrument and other general market
conditions.
The following table summarizes the estimated effects of hypothetical increases and decreases in interest
rates on assets and liabilities that are subject to interest rate risk. It is assumed that the changes occur immediately
and uniformly to each category of instrument containing interest rate risks. The hypothetical changes in market
interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates
could produce significant changes in the timing of repayments due to prepayment options available. For these
reasons, actual results might differ from those reflected in the table which follows. Dollars are in millions.
Estimated Fair Value after
Hypothetical Change in Interest Rates
(bp=basis points)
100 bp 100 bp 200 bp 300 bp
Fair decrease increase increase increase
As of December 31, 2000
Investments in securities with fixed maturities.... $32,567 $33,466 $31,346 $30,005 $28,690
Borrowings under investment agreements and
other debt......................................................... 2,470 2,540 2,404 2,336 2,274
As of December 31, 1999
Investments in securities with fixed maturities.... $30,222 $31,942 $28,483 $26,852 $25,413
Borrowings under investment agreements and
other debt......................................................... 1,971 2,059 1,891 1,819 1,753
Financial Products Risk
The finance and financial products operations are subject to market risk principally through Gen Re
Securities Holdings Limited (“GRS”). GRS monitors its market risk on a daily basis across all swap and option
products by calculating the effect on operating results of potential changes in market variables over a one week
period, based on historical market volatility, correlation data and informed judgment. This evaluation is done on
an individual trading book basis, against limits set by individual book, to a 99% probability level. GRS sets market
risk limits for each type of risk, and for an aggregate measure of risk, based on a 99% probability that movements
in market rates will not affect the results from operations in excess of the risk limit over a one week period. GRS’s
weekly aggregate market risk limit was $22 million in 2000 and $15 million in 1999. During 1999, the actual
losses exceeded the market risk limit on one occasion. In addition to these daily and weekly assessments of risk,
GRS prepares periodic stress tests to assess its exposure to extreme movements in various market risk factors.
The table below shows the highest, lowest and average value at risk, as calculated using the above
methodology, by broad category of market risk to which GRS is exposed. Dollars are in millions.
2000
Foreign 1999
Interest Rate Exchange Rate Equity Credit All Risks All Risks
Highest ............................ $7 $6 $4 $3 $14 $10
Lowest............................. 3 3 — 1 1 4
Average ........................... 5 4 1 1 4 8