Berkshire Hathaway 2005 Annual Report Download - page 57

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BERKSHIRE HATHAWAY INC.
and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Net earnings for each of the past three years are disaggregated in the table that follows. Amounts are after deducting
income taxes and minority interests. Dollars are in millions.
2005 2004 2003
Insurance – underwriting............................................................................................... $ 27 $1,008 $1,114
Insurance – investment income..................................................................................... 2,412 2,045 2,276
Non-insurance businesses ............................................................................................. 2,160 1,913 1,745
Equity in earnings of MidAmerican Energy Holdings Company ................................. 523 237 429
Interest expense, unallocated ........................................................................................ (46) (59) (59)
Other ............................................................................................................................. (78) (95) (83)
Investment and derivative gains/losses ......................................................................... 3,530 2,259 2,729
Net earnings...................................................................................................... $8,528 $7,308 $8,151
Berkshire’ s operating businesses are managed on an unusually decentralized basis. There are essentially no centralized
or integrated business functions (such as sales, marketing, purchasing, legal or human resources) and there is minimal
involvement by Berkshire’ s corporate headquarters in the day-to-day business activities of the operating businesses. Berkshire’ s
corporate office management participates in and is ultimately responsible for significant capital allocation decisions, investment
activities and the selection of the Chief Executive to head each of the operating businesses.
Accordingly, Berkshire’ s reportable business segments are organized in a manner that reflects how Berkshire’ s top
management views those business activities. Certain businesses have been grouped based upon similar products or product lines,
marketing, selling and distribution characteristics even though those businesses are operated by separate local management.
There are over 40 separate reporting units. The business segment data (Note 20 to the Consolidated Financial Statements) should
be read in conjunction with this discussion.
Insurance — Underwriting
A summary follows of underwriting results from Berkshire’ s insurance businesses for the past three years. Dollars are
in millions.
2005 2004 2003
Underwriting gain (loss) attributable to:
GEICO.................................................................................................................... $ 1,221 $ 970 $ 452
General Re .............................................................................................................. (334) 3 145
Berkshire Hathaway Reinsurance Group................................................................ (1,069) 417 1,047
Berkshire Hathaway Primary Group....................................................................... 235 161 74
Pre-tax underwriting gain.............................................................................................. 53 1,551 1,718
Income taxes and minority interests.............................................................................. 26 543 604
Net underwriting gain....................................................................................... $ 27 $ 1,008 $ 1,114
During the third quarter of 2005, Hurricanes Katrina and Rita struck the Gulf Coast region of the United States
producing the largest catastrophe losses for any quarter in the history of the property/casualty insurance industry. In the fourth
quarter, Hurricane Wilma struck the Southeast U.S. Estimates of Berkshire’ s (including General Re, GEICO and other Berkshire
subsidiaries including BHRG) pre-tax losses from these events of $3.4 billion were recorded primarily in the third quarter of
2005 and are subject to change as additional information concerning the nature and amount of losses becomes known.
Berkshire engages in both primary insurance and reinsurance of property and casualty risks. Through General Re,
Berkshire also reinsures life and health risks. In primary insurance activities, Berkshire subsidiaries assume defined portions of
the risks of loss from persons or organizations that are directly subject to the risks. In reinsurance activities, Berkshire
subsidiaries assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected themselves to in
their own insuring activities. Berkshire’ s principal insurance businesses are: (1) GEICO, one of the four largest auto insurers in
the U.S., (2) General Re, (3) Berkshire Hathaway Reinsurance Group (“BHRG”) and (4) Berkshire Hathaway Primary Group.
On June 30, 2005, Berkshire acquired Medical Protective Company (“Med Pro”), a provider of professional liability insurance to
physicians, dentists and other healthcare providers. Underwriting results from this business are included in the Berkshire
Hathaway Primary Group beginning July 1, 2005.