Berkshire Hathaway 2004 Annual Report Download - page 45

44
Notes to Consolidated Financial Statements (Continued)
(12) Unpaid losses and loss adjustment expenses (Continued)
Supplemental data with respect to unpaid losses and loss adjustment expenses of property/casualty insurance
subsidiaries is as follows (in millions).
2004 2003 2002
Unpaid losses and loss adjustment expenses:
Gross liabilities at beginning of year ................................................................ $45,393 $43,771 $40,562
Ceded losses and deferred charges at beginning of year .................................. (5,684) (6,002) (6,189)
Net balance at beginning of year....................................................................... 39,709 37,769 34,373
Incurred losses recorded during the year:
Current accident year ........................................................................................ 13,043 13,135 12,206
All prior accident years ..................................................................................... 419 480 1,540
Total incurred losses ......................................................................................... 13,462 13,615 13,746
Payments during the year with respect to:
Current accident year ........................................................................................ (4,746) (4,493) (4,042)
All prior accident years ..................................................................................... (8,828) (8,092) (6,653)
Total payments .................................................................................................. (13,574) (12,585) (10,695)
Unpaid losses and loss adjustment expenses:
Net balance at end of year................................................................................. 39,597 38,799 37,424
Ceded losses and deferred charges at end of year............................................. 5,132 5,684 6,002
Foreign currency translation adjustment........................................................... 490 910 345
Gross liabilities at end of year.............................................................................. $45,219 $45,393 $43,771
Prior accident years losses incurred in 2004 include amortization of deferred charges related to retroactive
reinsurance contracts incepting prior to January 1, 2004. Amortization charges included in prior accident years losses
were $451 million in 2004, $432 million in 2003 and $430 million in 2002.
Certain workers’ compensation reserves are discounted. Net discounted liabilities at December 31, 2004 and 2003
were $2,280 million and $2,211 million, respectively, and are net of discounts totaling $2,611 million and $2,435
million. Periodic accretions of these discounts are also a component of prior years losses incurred. The accretion of
discounted liabilities was approximately $87 million in 2004, $85 million in 2003 and $81 million in 2002.
Incurred losses “all prior accident years” also 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. In both 2004 and 2003,
Berkshire reduced the beginning of the year loss and loss adjustment expense liability by $119 million and $37 million
respectively. In 2002, Berkshire recorded a loss of $1,029 million related to prior years loss occurrences. The most
significant component of losses from prior years occurrences in 2002 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 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 $5.6 billion at December 31, 2004 and $5.5 billion at December 31, 2003. These
liabilities include $4.2 billion at December 31, 2004 and $4.4 billion at December 31, 2003, of liabilities assumed under
retroactive reinsurance contracts written by the Berkshire Hathaway Reinsurance Group. Claim liabilities arising from
the retroactive contracts are subject to aggregate policy limits. Thus, Berkshire’ s exposure to environmental and latent
injury claims under these contracts is, likewise, limited. Claims paid or reserved under these contracts, which may also
cover losses unrelated to these exposures, were approximately 85% of aggregate policy limits as of the end of 2004.