Berkshire Hathaway 2009 Annual Report Download - page 46

Notes to Consolidated Financial Statements (Continued)
(14) Unpaid losses and loss adjustment expenses (Continued)
Incurred losses for prior accident years also include amortization of deferred charges related to retroactive reinsurance
contracts incepting prior to the beginning of the year and the accretion of the net discounts recorded on certain workers’
compensation loss reserves. Amortization charges included in prior accident years’ losses were $504 million in 2009, $451
million in 2008 and $213 million in 2007. Net discounted workers’ compensation liabilities at December 31, 2009 and 2008
were $2,356 million and $2,403 million, respectively, reflecting net discounts of $2,473 million and $2,616 million,
respectively. The accretion of discounted liabilities related to prior years’ incurred losses was approximately $98 million in
2009, $99 million in 2008 and $102 million in 2007.
We are exposed to environmental, asbestos and other latent injury claims arising from insurance and reinsurance contracts.
Loss reserve estimates for environmental and asbestos exposures include case basis reserves and also reflect reserves for legal
and other loss adjustment expenses and IBNR reserves. IBNR reserves are determined based upon our historic general liability
exposure base and policy language, previous environmental loss experience and the assessment of current trends of
environmental law, environmental cleanup costs, asbestos liability law and judgmental settlements of asbestos liabilities.
The liabilities for environmental, asbestos and latent injury claims and claims expenses net of reinsurance recoverables
were approximately $10.6 billion at December 31, 2009 and $10.7 billion at December 31, 2008. These liabilities included
approximately $9.1 billion at December 31, 2009 and $9.2 billion at December 31, 2008 of liabilities assumed under retroactive
reinsurance contracts. Liabilities arising from retroactive contracts with exposure to claims of this nature are generally subject to
aggregate policy limits. Thus, our exposure to environmental and latent injury claims under these contracts is, likewise, limited.
We monitor evolving case law and its effect on environmental and latent injury claims. Changing government regulations,
newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors could
result in significant increases in these liabilities. Such development could be material to our results of operations. It is not
possible to reliably estimate the amount of additional net loss or the range of net loss that is reasonably possible.
In 2007, we entered into a reinsurance agreement with Equitas, a London based entity established to reinsure and manage
the 1992 and prior years’ non-life insurance and reinsurance liabilities of the Names or Underwriters at Lloyd’s of London.
Under the agreement as amended, we have agreed to provide up to $7 billion of reinsurance to Equitas in excess of its
undiscounted loss and allocated loss adjustment expense reserves as of March 31, 2006. The agreement requires that we pay all
claims and related costs that arise from the underlying insurance and reinsurance contracts of Equitas, subject to the
aforementioned excess limit of indemnification. A significant amount of loss exposure associated with Equitas is related to
asbestos, environmental and latent injury claims.
(15) Notes payable and other borrowings
Notes payable and other borrowings are summarized below (in millions).
2009 2008
Insurance and other:
Issued or guaranteed by Berkshire due 2010-2035 ............................................ $2,021 $2,275
Issued by subsidiaries and not guaranteed by Berkshire due 2010-2038 ........................... 1,698 2,074
$3,719 $4,349
Debt issued or guaranteed by Berkshire includes short-term borrowings of $1.6 billion as of December 31, 2009 and $1.8
billion as of December 31, 2008. In February 2010, Berkshire issued $8.0 billion aggregate par amount of senior notes
consisting of $2.0 billion par amount of floating rate notes due in 2011; $1.1 billion par amount of floating rate notes due in
2012; $1.2 billion par amount of floating rate notes due in 2013; $600 million par amount of 1.4% notes due in 2012; $1.4
billion par amount of 2.125% notes due in 2013; and $1.7 billion par amount of 3.2% notes due in 2015. These notes were
issued in connection with the BNSF acquisition.
44