Berkshire Hathaway 2001 Annual Report Download - page 42

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(15) Fair values of financial instruments
The estimated fair values of Berkshire’ s financial instruments as of December 31, 2001 and 2000, are as follows
(in millions). Carrying Value Fair Value
2001 2000 2001 2000
Investments in securities with fixed maturities .................................... $36,509 $32,567 $36,603 $32,567
Investments in equity securities ........................................................... 28,675 37,619 28,675 37,619
Assets of finance and financial products businesses ............................ 41,591 16,829 41,710 16,913
Borrowings under investment agreements and other debt.................... 3,485 2,663 3,624 2,704
Liabilities of finance and financial products businesses....................... 37,791 14,730 37,917 14,896
In determining fair value of financial instruments, Berkshire used quoted market prices when available. For
instruments where quoted market prices were not available, independent pricing services or appraisals by Berkshire’ s
management were used. Those services and appraisals reflected the estimated present values utilizing current risk
adjusted market rates of similar instruments. The carrying values of cash and cash equivalents, receivables and accounts
payable, accruals and other liabilities are deemed to be reasonable estimates of their fair values.
Considerable judgment is necessarily required in interpreting market data used to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that could be realized in
a current market exchange. The use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value.
(16) Litigation
GEICO has been named as a defendant in a number of class action lawsuits related to the use of replacement repair
parts not produced by the original auto manufacturer, the calculation of “total loss” value and whether to pay diminished
value as part of the settlement of certain claims. Management intends to vigorously defend GEICO’ s position on these
claim settlement procedures. However, these lawsuits are in various stages of development and the ultimate outcome
cannot be reasonably determined.
Berkshire and its subsidiaries are parties in a variety of legal actions arising out of the normal course of business.
In particular, and in common with the insurance industry in general, such legal actions affect Berkshire’ s insurance and
reinsurance businesses. Such litigation generally seeks to establish liability directly through insurance contracts or
indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or
exemplary damages. Berkshire does not believe that such normal and routine litigation will have a material effect on its
financial condition or results of operations.
(17) Insurance premium and supplemental cash flow information
Premiums written and earned by Berkshire’ s property/casualty and life/health insurance businesses during each of
the three years ending December 31, 2001 are summarized below. Dollars are in millions.
Property/Casualty Life/Health
2001 2000 1999 2001 2000 1999
Premiums Written:
Direct................................................................... $ 8,294 $ 6,858 $ 5,798
Assumed.............................................................. 9,332 11,270 7,951 $2,162 $2,520 $1,981
Ceded................................................................... (890) (729) (818) (157) (257) (245)
$16,736 $17,399 $12,931 $2,005 $2,263 $1,736
Premiums Earned:
Direct................................................................... $ 7,654 $ 6,666 $ 5,606
Assumed.............................................................. 9,097 11,036 7,762 $2,143 $2,513 $1,971
Ceded................................................................... (834) (620) (788) (155) (252) (245)
$15,917 $17,082 $12,580 $1,988 $2,261 $1,726
Insurance premiums written by geographic region (based upon the domicile of the insured) are summarized below.
Property/Casualty Life/Health
2001 2000 1999 2001 2000 1999
United States................................................................ $13,319 $11,409 $ 8,862 $1,176 $1,296 $ 970
Western Europe............................................................ 2,352 5,064* 2,000 518 633 539
All other ....................................................................... 1,065 926 2,069 311 334 227
$16,736 $17,399 $12,931 $2,005 $2,263 $1,736
*Premiums attributed to Western Europe include $2,438 million from a single reinsurance policy.