Berkshire Hathaway 2009 Annual Report Download - page 51

Notes to Consolidated Financial Statements (Continued)
(18) Fair value measurements (Continued)
Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to
use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or
liabilities or related observable inputs that can be corroborated at the measurement date. Unobservable inputs require
management to make certain projections and assumptions about the information that would be used by market participants
in pricing assets or liabilities. Measurements of non-exchange traded derivative contracts and certain other investments
carried at fair value are based primarily on valuation models, discounted cash flow models or other valuation techniques
that are believed to be used by market participants. We value equity index put option contracts based on the Black-Scholes
option valuation model which we believe is widely used by market participants. Inputs to this model include current index
price, expected volatility, dividend and interest rates and contract duration. Credit default contracts are primarily valued
based on indications of bid or offer data as of the balance sheet date. These contracts are not exchange traded and certain of
the terms of our contracts are not standard in derivatives markets. For example, we are not required to post collateral under
most of our contracts. For these reasons, we classified these contracts as Level 3.
Financial assets and liabilities measured and carried at fair value on a recurring basis in our financial statements as of
December 31, 2009 and December 31, 2008 are summarized according to the hierarchy previously described as follows (in
millions).
Total
Fair Value
Quoted
Prices
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
December 31, 2009
Insurance and other:
Investments in fixed maturity securities .................. $32,523 $ 5,407 $26,596 $ 520
Investments in equity securities ......................... 56,562 56,169 89 304
Other investments ................................... 17,504 — — 17,504
Utilities and energy:
Investments in equity securities ......................... 1,986 1,986 — —
Net derivative contract (assets)/liabilities ................. 393 (1) 35 359
Finance and financial products:
Investments in fixed maturity securities .................. 4,608 — 4,210 398
Investments in equity securities ......................... 486 485 1 —
Other investments ................................... 1,058 — — 1,058
Net derivative contract liabilities ........................ 9,003 — 166 8,837
December 31, 2008
Insurance and other:
Investments in fixed maturity securities .................. $27,115 $ 4,961 $21,650 $ 504
Investments in equity securities ......................... 49,073 48,666 79 328
Other investments ................................... 8,223 — — 8,223
Utilities and energy:
Net derivative contract liabilities ........................ 405 — 2 403
Finance and financial products:
Investments in fixed maturity securities .................. 4,517 — 4,382 135
Net derivative contract liabilities ........................ 14,404 — 288 14,116
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