Berkshire Hathaway 2002 Annual Report Download - page 65

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Management's Discussion (Continued)
Interest Rate Risk (Continued)
The fair values of Berkshire's fixed maturity investments and notes payable and other borrowings 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 creditworthiness 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. Dollars are in millions.
Estimated Fair Value after
Hypothetical Change in Interest Rates
(bp=basis points)
Insurance and other businesses 100 bp 100 bp 200 bp 300 bp
Fair Value decrease increase increase increase
As of December 31, 2002
Investments in securities with fixed maturities ..... $38,096 $40,411 $36,087 $34,129 $32,262
Notes payable and other borrowings..................... 4,957 5,042 4,879 4,809 4,744
As of December 31, 2001
Investments in securities with fixed maturities ..... $36,219 $38,532 $33,969 $31,809 $29,820
Notes payable and other borrowings..................... 3,624 3,708 3,545 3,474 3,407
Finance and financial products businesses *
As of December 31, 2002
Investments in securities with fixed maturities
and loans and other receivables.......................... $20,011 $20,152 $20,062 $19,779 $19,161
Notes payable and other borrowings **................ 17,205 17,285 17,080 17,000 16,930
As of December 31, 2001
Investments in securities with fixed maturities
and loans and other receivables.......................... $28,126 $28,545 $27,221 $26,140 $25,025
Notes payable and other borrowings **................ 26,373 26,451 26,307 26,244 26,186
*Excludes General Re Securities – See Financial Products Risk section for discussion of risks associated with this business.
** Includes securities sold under agreements to repurchase.
Equity Price Risk
Strategically, Berkshire strives to invest in businesses that possess excellent economics, with able and
honest management and at sensible prices. Berkshire's management prefers to invest a meaningful amount in
each investee. Accordingly, Berkshire's equity investments are concentrated in relatively few investees. At
December 31, 2002, 68.9% of the total fair value of equity investments was concentrated in four investees.
Berkshire's preferred strategy is to hold equity investments for very long periods of time. Thus, Berkshire
management is not necessarily troubled by short term equity price volatility with respect to its investments provided
that the underlying business, economic and management characteristics of the investees remain favorable.
Berkshire strives to maintain above average levels of shareholder capital to provide a margin of safety against short
term equity price volatility.