Berkshire Hathaway 2008 Annual Report Download - page 70

Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
Berkshire Hathaway Primary Group
Berkshire’s primary insurance group consists of a wide variety of independently managed insurance businesses that
principally write liability coverages for commercial accounts. These businesses include: Medical Protective Corporation
(“MedPro”), a provider of professional liability insurance to physicians, dentists and other healthcare providers; National
Indemnity Company’s primary group operation (“NICO Primary Group”), a writer of commercial motor vehicle and general
liability coverages; U.S. Investment Corporation, whose subsidiaries underwrite specialty insurance coverages; a group of
companies referred to internally as “Homestate” operations, providers of standard commercial multi-line insurance; Central
States Indemnity Company, a provider of credit and disability insurance to individuals nationwide through financial institutions;
Applied Underwriters, a provider of integrated workers’ compensation solutions; and BoatU.S., (acquired in August 2007)
which writes insurance for owners of boats and small watercraft.
Earned premiums by the primary insurance businesses were $1,950 million in 2008, $1,999 million in 2007 and $1,858
million in 2006. Roughly 33% of the premiums earned in each year were from MedPro. In 2008, premiums earned by the NICO
Primary Group declined by approximately 30%, which was partially offset by increased premiums earned from the Homestate
operations and BoatU.S. Pre-tax underwriting gains as percentages of premiums earned were approximately 11% in 2008, 14%
in 2007 and 18% in 2006. The decline in underwriting gains in 2008 from 2007 reflected declines in underwriting gains from
the NICO Primary Group and Homestate operations, which were primarily due to less favorable loss reserve development of
prior years’ occurrences as well as relatively higher losses for current year occurrences.
Insurance—Investment Income
A summary of the net investment income of Berkshire’s insurance operations for the past three years follows. Amounts are in
millions.
2008 2007 2006
Investment income before income taxes and minority interests .............................. $4,722 $4,758 $4,316
Income taxes and minority interests .................................................... 1,225 1,248 1,196
Investment income after income taxes and minority interests ................................ $3,497 $3,510 $3,120
Investment income consists of interest earned on cash equivalents and fixed maturity investments and dividends earned on
equity investments. Pre-tax investment income earned in 2008 was relatively unchanged from 2007. Investment income earned
in 2007 increased $442 million (10%) over 2006. The increase in 2007 over 2006 reflected increased invested assets, higher
short-term interest rates in the United States and increased dividend rates on certain equity investments.
In 2008, dividend income increased $534 million, reflecting increased investments in equity securities and increased
dividend rates with respect to certain securities. The increase in dividends earned was offset by a decline in interest earned,
reflecting lower levels of related fixed maturity investments and generally lower interest rates applicable to cash equivalents and
short-term investments. In October 2008, Berkshire subsidiaries acquired the Wrigley, Goldman Sachs and General Electric
securities for an aggregate cost of $14.5 billion. See Note 5 to the Consolidated Financial Statements. Interest and dividends
from these securities will be approximately $1.4 billion per annum, which is substantially greater than earnings currently
expected from short-term investments.
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