Berkshire Hathaway 2010 Annual Report Download - page 52

Notes to Consolidated Financial Statements (Continued)
(13) Unpaid losses and loss adjustment expenses (Continued)
A reconciliation of the changes in liabilities for unpaid losses and loss adjustment expenses of our property/casualty
insurance subsidiaries is as follows (in millions).
2010 2009 2008
Unpaid losses and loss adjustment expenses:
Gross liabilities at beginning of year .......................................... $59,416 $ 56,620 $ 56,002
Ceded losses and deferred charges at beginning of year ........................... (6,879) (7,133) (7,126)
Net balance at beginning of year ............................................. 52,537 49,487 48,876
Incurred losses recorded during the year:
Current accident year ...................................................... 20,357 19,156 17,399
Prior accident years ....................................................... (2,270) (905) (1,140)
Total incurred losses ...................................................... 18,087 18,251 16,259
Payments during the year with respect to:
Current accident year ...................................................... (7,666) (7,207) (6,905)
Prior accident years ....................................................... (9,191) (8,315) (8,486)
Total payments ........................................................... (16,857) (15,522) (15,391)
Unpaid losses and loss adjustment expenses:
Net balance at end of year .................................................. 53,767 52,216 49,744
Ceded losses and deferred charges at end of year ................................ 6,545 6,879 7,133
Foreign currency translation adjustment ....................................... (312) 232 (616)
Acquisitions ............................................................. 75 89 359
Gross liabilities at end of year ................................................... $60,075 $ 59,416 $ 56,620
Incurred losses recorded during the current year but attributable to a prior accident year (“prior accident years”) reflects the
amount of estimation error charged or credited to earnings in each calendar year with respect to the liabilities established as of
the beginning of that year. We reduced the beginning of the year net losses and loss adjustment expenses liability by
$2,626 million in 2010, $1,507 million in 2009 and $1,690 million in 2008, which excludes the effects of prior years’ discount
accretion and deferred charge amortization referred to below. In each year, the reductions in loss estimates for occurrences in
prior years were primarily due to lower than expected severities and frequencies on private passenger and commercial auto
claims, lower than expected reported reinsurance losses in both property and casualty lines and lower than expected medical
malpractice losses. Accident year loss estimates are regularly adjusted to consider emerging loss development patterns of prior
years’ losses, whether favorable or unfavorable.
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 $261 million in 2010,
$504 million in 2009 and $451 million in 2008. Net discounted workers’ compensation liabilities at December 31, 2010 and
2009 were $2,315 million and $2,356 million, respectively, reflecting net discounts of $2,269 million and $2,473 million,
respectively. The accretion of discounted liabilities related to prior accident years’ incurred losses was approximately
$95 million in 2010, $98 million in 2009 and $99 million in 2008.
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 $12.4 billion at December 31, 2010 and $10.6 billion at December 31, 2009. These liabilities included
approximately $10.7 billion at December 31, 2010 and $9.1 billion at December 31, 2009 of liabilities assumed under
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