Berkshire Hathaway 2008 Annual Report Download - page 67

Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
General Re (Continued)
Property/casualty
Premiums written in 2008 declined 2.7% from 2007, which declined 2.9% versus 2006. Premiums written in
2008 included $205 million with respect to a reinsurance-to-close transaction that increased General Re’s
economic interest in the runoff of Lloyd’s Syndicate 435’s 2000 year of account from 39% to 100%. A similar
transaction in 2007 generated $114 million of premiums written and increased General Re’s economic interest in
the runoff of Lloyd’s Syndicate 435’s 2001 year of account from 60% to 100%. Neither of the reinsurance-to-
close transactions had any impact on net underwriting results because premiums earned were offset by
corresponding increases to loss reserves and losses incurred. There was no similar transaction in 2006.
Premiums earned in 2008 declined 5.0% from 2007, which declined 2.6% from 2006. Excluding the effects
of the previously mentioned reinsurance-to-close transactions and exchange rates, premiums earned declined
8.2% in 2008 compared to 2007 and 10.1% in 2007 compared to 2006. The overall comparative declines in
written and earned premiums reflect continued underwriting discipline by declining to accept business where
pricing is considered inadequate with respect to the risk. Competitive conditions currently prevailing within the
industry could lead to continued declines in business written in 2009.
Pre-tax underwriting results in 2008 included $275 million in underwriting gains from property business
partially offset by $112 million in underwriting losses from casualty/workers’ compensation business. The
property business produced underwriting losses of $120 million for the 2008 accident year, offset by $395
million of gains from favorable run-off of prior years’ losses. The current accident year results include $174
million of catastrophe losses from Hurricanes Gustav and Ike and $56 million of catastrophe losses from
European storms. The timing and magnitude of catastrophe and large individual losses produce significant
volatility in periodic underwriting results. The pre-tax underwriting losses from casualty/workers’ compensation
business in 2008 included $117 million of workers’ compensation loss reserve discount accretion and retroactive
reinsurance deferred charge amortization, offset in part by favorable run-off in other casualty lines. The casualty
results were adversely impacted by legal costs incurred in connection with the ongoing regulatory investigations
of finite reinsurance.
Pre-tax underwriting results in 2007 included $519 million in underwriting gains from property business,
partially offset by $44 million in underwriting losses from casualty/workers’ compensation business. The
property business produced underwriting gains of $90 million for the 2007 accident year and $429 million from
favorable run-off of prior years’ losses. The pre-tax underwriting losses from casualty business in 2007 included
$120 million of loss reserve discount accretion and deferred charge amortization, as well as legal costs associated
with the finite reinsurance investigations. These charges were largely offset by underwriting gains in other
casualty business.
Pre-tax underwriting results in 2006 included $708 million in underwriting gains from property business,
partially offset by $335 million in underwriting losses from casualty/workers’ compensation business, which
included legal and estimated settlement costs associated with the finite reinsurance regulatory investigations. The
2006 property results benefited from a lack of catastrophe losses and favorable runoff of prior years’ claim
reserves. The underwriting losses from casualty business in 2006 included $137 million in reserve discount
accretion and deferred charge amortization, increases in prior years’ workers’ compensation reserves of $103
million and increases in asbestos and environmental reserves.
Life/health
Premiums earned in 2008 increased 4.8% over 2007, which increased 4.1% over 2006. Adjusting for the
effects of foreign currency exchange rates, premiums earned increased 2.2% over 2007 which were relatively
unchanged when compared to 2006. The increase in premiums earned in 2008 was primarily from life business in
North America. Underwriting results for the life/health operations produced pre-tax underwriting gains in each of
the past three years driven by gains from the life business primarily as a result of lower mortality rates.
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