Berkshire Hathaway 2009 Annual Report Download - page 67

Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
Berkshire Hathaway Reinsurance Group
Through the Berkshire Hathaway Reinsurance Group (“BHRG”), we underwrite excess-of-loss reinsurance and quota-
share coverages for insurers and reinsurers worldwide. Our business in BHRG includes catastrophe excess-of-loss reinsurance
and excess direct and facultative reinsurance for large or otherwise unusual discrete risks referred to as individual risk.
Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses with respect to past loss events.
Other multi-line refers to other business written on both a quota-share and excess basis, participations in and contracts with
Lloyd’s syndicates as well as property, aviation and workers’ compensation programs. BHRG’s underwriting results are
summarized in the table below. Amounts are in millions.
Premiums earned Pre-tax underwriting gain/loss
2009 2008 2007 2009 2008 2007
Catastrophe and individual risk ............................. $ 823 $ 955 $ 1,577 $ 782 $ 776 $1,477
Retroactive reinsurance ................................... 1,989 204 7,708 (448) (414) (375)
Other multi-line ......................................... 3,894 3,923 2,617 15 962 325
$6,706 $5,082 $11,902 $ 349 $1,324 $1,427
Catastrophe and individual risk contracts may provide exceptionally large limits of indemnification, often several hundred
million dollars and occasionally in excess of $1 billion, and cover catastrophe risks (such as hurricanes, earthquakes or other
natural disasters) or other property and liability risks (such as aviation and aerospace, commercial multi-peril or terrorism). The
timing and magnitude of losses produce extraordinary volatility in periodic underwriting results of BHRG’s catastrophe and
individual risk business. In early 2009, we constrained the volume of business written in response to the decline in our
consolidated net worth that occurred in the first quarter. Though our net worth recovered significantly since then, we have
continued to constrain the volume of business written in light of the BNSF acquisition. Also, premium rates were not attractive
enough in 2009 to warrant increasing volume.
Catastrophe and individual risk premiums written were approximately $725 million in 2009, $1.1 billion in 2008 and $1.2
billion in 2007. The decreases in premium volume were principally attributable to increased industry capacity for catastrophe
reinsurance and, consequently, fewer opportunities to write business at prices we considered adequate. Based on soft market
conditions prevailing at the end of 2009, we expect premium volume will continue to be constrained for at least the first half of
2010. The level of catastrophe and individual risk business we write in a given period will vary significantly based upon market
conditions and our assessment of the adequacy of premium rates. Premiums earned from catastrophe and individual risk
contracts in 2009 declined 14% from 2008, which decreased 39% from 2007.
Underwriting results of our catastrophe and individual risk business in 2009 reflected no significant losses from
catastrophes during the year, while in 2008 we incurred approximately $270 million of estimated losses from Hurricanes Gustav
and Ike. Underwriting gains in 2008 included $224 million from a contract in which we agreed to purchase, under certain
conditions, up to $4 billion of revenue bonds issued by the Florida Hurricane Catastrophe Fund Finance Corporation. Our
obligation was conditioned upon, among other things, the occurrence of a specified amount of Florida hurricane losses during a
period that expired on December 31, 2008 and which was not met. Catastrophe and individual risk underwriting results in 2007
reflected no significant losses from catastrophe events occurring in that year.
Premiums earned in 2009 from retroactive reinsurance included 2 billion Swiss Francs (“CHF”) (approximately $1.7
billion) from an adverse loss development contract with Swiss Reinsurance Company Ltd. and its affiliates (“Swiss Re”)
covering substantially all of Swiss Re’s non-life insurance losses and allocated loss adjustment expenses for loss events
occurring prior to January 1, 2009. The Swiss Re contract provides aggregate limits of indemnification of 5 billion CHF in
excess of a retention of Swiss Re’s reported loss reserves at December 31, 2008 (58.725 billion CHF) less 2 billion CHF. The
impact on underwriting results from this contract was negligible as the premiums earned were offset by a corresponding amount
of losses incurred. Premiums earned from retroactive reinsurance in 2007 included $7.1 billion from a reinsurance agreement
with Equitas which became effective on March 30, 2007. See Note 14 to the Consolidated Financial Statements.
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