Berkshire Hathaway 2005 Annual Report Download - page 60

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Insurance — Underwriting (Continued)
General Re
Property/casualty (Continued)
The International property/casualty businesses produced pre-tax underwriting losses of $138 million in 2005 and $93
million in 2004 compared with a gain of $20 million in 2003. Underwriting results included catastrophe losses from U.S.
hurricanes of $205 million in 2005 and $110 million in 2004. Additionally, results in 2005 included $29 million in losses from
Windstorm Erwin. Losses from catastrophes and large individual property losses were minimal in 2003. Underwriting results for
each of the last three years benefited from favorable results of the aviation business and relatively small non-catastrophe property
losses. The International property and casualty underwriting results included gains from prior years’ loss occurrences of $108
million in 2005, compared with losses of $102 million in 2004 and $104 million in 2003. Prior years’ losses in 2004 and 2003
were primarily in motor excess, workers’ compensation and other casualty lines and also reflect reserve increases for operations
placed in run-off.
Although loss reserve levels are now believed to be adequate, there are no guarantees. A relatively small change in the
estimate of net reserves can produce large changes in annual underwriting results. In addition, the timing and magnitude of
catastrophe and large individual property losses are expected to continue to contribute to volatile periodic underwriting results in
the future.
Life and health
Premiums earned in 2005 increased 13.9% over 2004, which increased 9.1% over 2003. Adjusting for the effects of
foreign currency exchange rates, premiums earned increased 14.2% in 2005 and 3.7% in 2004. The increase in 2005 premiums
earned reflected increases in both North American and European life business. In 2004, the increase was attributable, in part, to
the strengthening of foreign currencies and an increase in European life business.
Underwriting results for the global life/health operations produced pre-tax underwriting gains of $111 million in 2005,
$85 million in 2004 and $58 million in 2003. Both the U.S. and International life/health operations were profitable in each of the
past three years primarily due to favorable mortality; however, most of the gains were earned in the International life business.
Additionally, included in the 2005 and 2004 results were $66 million and $46 million, respectively, of net losses attributable to
reserve increases on certain U.S. health business in run-off.
Berkshire Hathaway Reinsurance Group
The Berkshire Hathaway Reinsurance Group (“BHRG”) underwrites excess-of-loss reinsurance and quota-share
coverages for insurers and reinsurers world-wide. BHRG’ s business includes catastrophe excess-of-loss reinsurance and excess
direct and facultative reinsurance for large or otherwise unusual discrete property risks referred to as individual risk. Retroactive
reinsurance policies provide indemnification of losses and loss adjustment expenses with respect to past loss events. Other multi-
line refers to other business written on both a quota-share and excess basis, and includes participations in and contracts with
Lloyd’ s syndicates. In addition, during the past twelve months BHRG has written increased amounts of aviation business and
workers’ compensation insurance. Amounts are in millions.
Premiums earned Pre-tax underwriting gain (loss)
2005 2004 2003 2005 2004 2003
Catastrophe and individual risk.............................. $1,663 $1,462 $1,330 $(1,178) $ 385 $1,108
Retroactive reinsurance .......................................... 10 188 526 (214) (412) (387)
Other multi-line...................................................... 2,290 2,064 2,574 323 444 326
$3,963 $3,714 $4,430 $(1,069)* $ 417 $1,047
* Includes losses of $2.5 billion from Hurricanes Katrina, Rita and Wilma.
Catastrophe and individual risk contracts may provide exceptionally large limits of indemnification, often several
hundred million dollars and occasionally in excess of $1 billion, and cover catastrophe risks (such as hurricanes, earthquakes or
other natural disasters) or other property risks (such as aviation and aerospace, commercial multi-peril or terrorism). Catastrophe
and individual risk premiums written totaled approximately $1.8 billion in 2005, $1.5 billion in 2004 and $1.2 billion in 2003.
The level of business written in future periods will vary, perhaps materially, based upon market conditions and management’ s
assessment of the adequacy of premium rates, which is affected by industry capacity for catastrophe coverages.
Underwriting results from catastrophe and individual risk business in 2005 included estimated losses of approximately
$2.4 billion from Hurricanes Katrina, Rita and Wilma. In 2004, underwriting results from catastrophe and individual risk
business included estimated catastrophe losses of $790 million from four hurricanes that struck the U.S. and Caribbean during
the third quarter. The catastrophe and individual risk business produced substantial underwriting gains in 2003 due to the lack of
catastrophic or otherwise large loss events. The timing and magnitude of losses may produce extraordinary volatility in periodic
underwriting results of BHRG’ s catastrophe and individual risk business. Management accepts such volatility, however,
provided that the long-term prospect of achieving underwriting profits is reasonable. BHRG generally does not cede catastrophe
and individual risks to other reinsurers.