Berkshire Hathaway 2003 Annual Report Download - page 42

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(11) Unpaid losses and loss adjustment expenses (Continued)
Supplemental data with respect to unpaid losses and loss adjustment expenses of property/casualty insurance
subsidiaries (in millions) is as follows. 2003 2002 2001
Unpaid losses and loss adjustment expenses:
Gross liabilities at beginning of year ................................................................ $43,771 $40,562 $32,868
Ceded losses and deferred charges.................................................................... (6,002) (6,189) (5,590)
Net balance........................................................................................................ 37,769 34,373 27,278
Incurred losses recorded:
Current accident year ........................................................................................ 13,135 12,206 15,607
All prior accident years ..................................................................................... 480 1,540 1,152
Total incurred losses ......................................................................................... 13,615 13,746 16,759
Payments with respect to:
Current accident year ........................................................................................ 4,493 4,042 4,435
All prior accident years ..................................................................................... 8,092 6,653 5,352
Total payments .................................................................................................. 12,585 10,695 9,787
Unpaid losses and loss adjustment expenses:
Net balance at end of year................................................................................. 38,799 37,424 34,250
Ceded losses and deferred charges.................................................................... 5,684 6,002 6,189
Foreign currency translation adjustment........................................................... 910 345 30
Net liabilities assumed in connection with business acquisitions..................... — — 93
Gross liabilities at end of year.............................................................................. $45,393 $43,771 $40,562
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. Berkshire recorded additional losses
of $480 million in 2003, $1,540 million in 2002 and $1,152 million in 2001 with respect to losses occurring in prior
years. Such amounts as percentages of the net balance as of the beginning of the year were 1.3%, 4.5% and 4.2% in
2003, 2002 and 2001, respectively.
Prior accident years’ losses incurred also include amortization of deferred charges related to retroactive
reinsurance contracts incepting prior to January 1, 2003. Amortization charges included in prior accident years’ losses
were $432 million in 2003, $430 million in 2002 and $328 million in 2001. Certain workers’ compensation reserves of
General Re are discounted. Net discounted liabilities at December 31, 2003 and 2002 were $2,211 million and $2,015
million, respectively, and are net of discounts totaling $2,435 million and $2,405 million. Periodic accretions of these
discounts are also a component of prior years’ losses incurred. The accretion of discounted liabilities is included in
incurred losses for all prior accident years and was approximately $85 million in 2003, $81 million in 2002 and $69
million in 2001. The most significant component of losses from prior years’ occurrences in both 2002 and 2001 was
reserve increases with respect to General Re’ s North American and international property/casualty reinsurance
businesses.
Berkshire’ s insurance subsidiaries are exposed to environmental, asbestos and other latent injury claims arising
from insurance and reinsurance contracts. Loss reserve estimates for environmental and asbestos exposures include case
basis reserves, which also reflect reserves for legal and other loss adjustment expenses and IBNR reserves. IBNR
reserves are determined based upon Berkshire’ s historic general liability exposure base and policy language, previous
environmental and loss experience and the assessment of current trends of environmental law, environmental cleanup
costs, asbestos liability law and judgmental settlements of asbestos liabilities.
The liabilities for environmental, asbestos, and latent injury claims and claims expenses net of reinsurance
recoverables were approximately $5.5 billion at December 31, 2003 and $6.6 billion at December 31, 2002. These
liabilities include $4.4 billion at December 31, 2003 and $5.4 billion at December 31, 2002, of liabilities assumed under