Berkshire Hathaway 2009 Annual Report Download - page 64

Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
Our management views insurance businesses as possessing two distinct operations – underwriting and investing.
Underwriting decisions are the responsibility of the unit managers; investing, with limited exceptions, is the responsibility of
Berkshire’s Chairman and CEO, Warren E. Buffett. Accordingly, we evaluate performance of underwriting operations without
any allocation of investment income.
Our 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 can produce significant volatility in our periodic underwriting results. In two out of the last three years, we
benefited from relatively minor levels of catastrophe losses. In 2008, our underwriting results included estimated losses of
approximately $900 million from Hurricanes Gustav and Ike. In 2009 and 2008, our underwriting results also included
significant unrealized foreign currency transaction gains and losses arising from the valuation of certain non-U.S. Dollar
denominated reinsurance liabilities into U.S. Dollars as a result of currency exchange rate fluctuations.
A key marketing strategy followed by all of our insurance businesses is the maintenance of extraordinary capital strength.
Statutory surplus of our insurance businesses was approximately $64 billion at December 31, 2009. 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.
A summary follows of underwriting results from our insurance businesses for the past three years. Amounts are in millions.
2009 2008 2007
Underwriting gain attributable to:
GEICO ...................................................................... $ 649 $ 916 $1,113
General Re ................................................................... 477 342 555
Berkshire Hathaway Reinsurance Group ............................................ 349 1,324 1,427
Berkshire Hathaway Primary Group ............................................... 84 210 279
Pre-tax underwriting gain ............................................................ 1,559 2,792 3,374
Income taxes and noncontrolling interests ............................................... 546 987 1,190
Net underwriting gain ....................................................... $1,013 $1,805 $2,184
GEICO
Through GEICO, we primarily write private passenger automobile insurance, offering coverages to insureds in all 50 states
and the District of Columbia. GEICO’s 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 our
strategy to be a low-cost auto insurer. In addition, we strive 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.
2009 2008 2007
Amount % Amount % Amount %
Premiums written ........................................... $13,758 $12,741 $11,931
Premiums earned ............................................ $13,576 100.0 $12,479 100.0 $11,806 100.0
Losses and loss adjustment expenses ............................ 10,457 77.0 9,332 74.8 8,523 72.2
Underwriting expenses ....................................... 2,470 18.2 2,231 17.9 2,170 18.4
Total losses and expenses ..................................... 12,927 95.2 11,563 92.7 10,693 90.6
Pre-tax underwriting gain ..................................... $ 649 $ 916 $ 1,113
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