Berkshire Hathaway 2003 Annual Report Download - page 57

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Management’s Discussion (Continued)
Insurance — Underwriting (Continued)
General Re (Continued)
losses in August and European storm Jeanette in October. The underwriting loss of $568 million in 2001 included
$247 million of net losses related to the September 11th terrorist attack and $143 million resulting from other large
individual property losses.
At December 31, 2003, the international property/casualty operations had gross loss reserves of $6.4
billion, ($6.0 billion net of reinsurance) compared to $5.4 billion in gross loss reserves at December 31, 2002 ($5.1
billion net of reinsurance). The increase in reserves during 2003 was primarily due to changes in foreign currency
rates. The overall economic effect of foreign currency changes were mitigated because foreign denominated
liabilities are largely offset by assets denominated in those currencies.
Faraday (London-market)
London-market business is written through Faraday Holdings Limited (“Faraday”). Faraday owns the
managing agent of Syndicate 435 at Lloyd’ s of London and provides capacity and participates in the results of
Syndicate 435. Through Faraday, General Re’ s participation in Syndicate 435 was 100% in 2003. Also included in
the London-market segment are Cologne Re’ s UK and Continental Europe broker-market subsidiaries.
Premiums earned in the London-market operations increased $95 million (11.1%) in 2003 as compared to
2002. Premiums earned in 2002 increased $280 million (48.7%) over 2001 amounts. In local currencies, premiums
earned in 2003 were unchanged from 2002 and increased 41.9% in 2002 over 2001. In 2003, premiums earned
from Cologne Re’ s Continental Europe broker-market subsidiary, which was placed in run-off, declined but were
offset by increases in earned premiums in Faraday Syndicate 435. Premiums earned in 2002 increased primarily
due to the increased participation in Faraday Syndicate 435 from 60.6% in 2001 to 96.7% in 2002.
London-market operations produced a pre-tax underwriting loss of $18 million in 2003, compared with
pre-tax underwriting losses of $4 million and $178 million in 2002 and 2001, respectively. The underwriting loss in
2003 included $73 million of reserve increases related to prior years’ loss events. These losses occurred primarily
in casualty lines. In 2003, underwriting gains were earned in property and aviation lines, reflecting more selective
underwriting and a lack of catastrophes and other large losses. Underwriting results in 2002 were adversely
impacted by $80 million of increases in prior years’ casualty loss reserve estimates and $17 million of European
flood losses. Offsetting these amounts were gains in property business. The London-market underwriting loss in
2001 included $66 million of losses from the September 11th terrorist attack as well as relatively high property
losses.
At December 31, 2003, the Faraday operations had gross loss reserves of $1.9 billion, ($1.7 billion net of
reinsurance) compared to $1.7 billion in gross reserves at December 31, 2002 ($1.3 billion net of reinsurance). The
increase in reserves during 2003 was primarily due to changes in foreign currency rates.
Global life/health
General Re’ s global life/health affiliates reinsure such risks worldwide. Premiums earned in 2003
decreased by $39 million (2.1%) compared with 2002. Premiums earned in 2002 for the global life/health
operations declined $102 million (5.1%) from 2001. Adjusting for the effects of foreign currency exchange,
premiums earned declined 9.6% in 2003, and 6.7% in 2002. The decline in 2003 was primarily due to decreases in
the group and individual health businesses in the U.S. life/health operations.
Underwriting results for the global life/health operations produced a pre-tax underwriting gain of $58
million in 2003, compared with underwriting losses of $55 million and $82 million in 2002 and 2001, respectively.
While both the U.S. and international life/health segments were profitable in 2003, most of the gains were earned in
the international life segment. The underwriting losses for 2002 and 2001 were principally due to increased
reserves on run-off business in the U.S. life/health operations. Underwriting results for 2001 also include $19
million of net losses related to the September 11th terrorist attack.