Berkshire Hathaway 2008 Annual Report Download - page 65

Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
Berkshire’s Chairman and CEO, Warren E. Buffett. Accordingly, Berkshire evaluates performance of underwriting operations
without any allocation of investment income.
Periodic underwriting results can be affected significantly by changes in estimates for unpaid losses and loss adjustment
expenses, including amounts established for occurrences in prior years. See the Critical Accounting Policies section of this
discussion for information concerning the loss reserve estimation process. In addition, the timing and amount of catastrophe
losses produce significant volatility in periodic underwriting results. Berkshire’s property and casualty reinsurance operations
benefited from relatively minor levels of catastrophe losses in 2007 and 2006. During 2008, Berkshire’s underwriting results
include estimated losses of approximately $900 million from Hurricanes Gustav and Ike. The impact on earnings of these losses
was substantially offset by unrealized foreign currency transaction gains during the last half of 2008 that arose from the
valuation of certain non-U.S. Dollar denominated reinsurance liabilities as a result of the significant strengthening of the U.S.
Dollar.
A key marketing strategy followed by all of the insurance businesses is the maintenance of extraordinary capital strength.
Statutory surplus of Berkshire’s insurance businesses was approximately $51 billion at December 31, 2008. This superior capital
strength creates opportunities, especially with respect to reinsurance activities, to negotiate and enter into insurance and reinsurance
contracts specially designed to meet the unique needs of insurance and reinsurance buyers. Additional information regarding
Berkshire’s insurance and reinsurance operations follows.
A summary follows of underwriting results from Berkshire’s insurance businesses for the past three years. Amounts are in
millions.
2008 2007 2006
Underwriting gain attributable to:
GEICO ...................................................................... $ 916 $1,113 $1,314
General Re ................................................................... 342 555 526
Berkshire Hathaway Reinsurance Group ............................................ 1,324 1,427 1,658
Berkshire Hathaway Primary Group ............................................... 210 279 340
Pre-tax underwriting gain ............................................................ 2,792 3,374 3,838
Income taxes and minority interests .................................................... 987 1,190 1,353
Net underwriting gain ....................................................... $1,805 $2,184 $2,485
GEICO
GEICO provides primarily private passenger automobile coverages to insureds in 49 states and the District of Columbia.
GEICO policies are marketed mainly by direct response methods in which customers apply for coverage directly to the
company via the Internet, over the telephone or through the mail. This is a significant element in GEICO’s strategy to be a
low-cost insurer. In addition, GEICO strives to provide excellent service to customers, with the goal of establishing long-term
customer relationships.
GEICO’s underwriting results for the past three years are summarized below. Dollars are in millions.
2008 2007 2006
Amount % Amount % Amount %
Premiums written ........................................... $12,741 $11,931 $11,303
Premiums earned ............................................ $12,479 100.0 $11,806 100.0 $11,055 100.0
Losses and loss adjustment expenses ............................ 9,332 74.8 8,523 72.2 7,749 70.1
Underwriting expenses ....................................... 2,231 17.9 2,170 18.4 1,992 18.0
Total losses and expenses ..................................... 11,563 92.7 10,693 90.6 9,741 88.1
Pre-tax underwriting gain ..................................... $ 916 $ 1,113 $ 1,314
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