Berkshire Hathaway 2010 Annual Report Download - page 73

Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
Property/casualty (Continued)
underwriting losses of $120 million for the 2008 accident year, offset by $395 million of gains from loss reserve reductions
related to loss events occurring before 2008. The 2008 accident year results included $174 million of catastrophe losses from
Hurricanes Gustav and Ike and $56 million of catastrophe losses from European storms. The underwriting losses from casualty/
workers’ compensation business in 2008 included $117 million of workers’ compensation loss reserve discount accretion and
deferred charge amortization, offset in part by reserve reductions related to prior years’ other casualty lines. The casualty results
were also adversely impacted by legal costs incurred in connection with regulatory investigations.
Life/health
Premiums earned in 2010 increased 3.4% over 2009, which increased 1.8% over 2008. Adjusting for the effects of foreign
currency exchange rate changes, premiums earned increased 4.8% over 2009, which increased 4.7% over 2008. The increases in
premiums earned since 2008 were primarily due to increased international business. Underwriting results for the global life/
health operations produced underwriting gains of $163 million in 2010, $177 million in 2009 and $179 million in 2008. Overall
results were profitable in each of the past three years driven by gains from the life business due primarily to favorable mortality.
Berkshire Hathaway Reinsurance Group
Through the Berkshire Hathaway Reinsurance Group, we underwrite excess-of-loss reinsurance and quota-share coverages
on property and casualty risks for insurers and reinsurers worldwide. BHRG’s business includes catastrophe excess-of-loss
reinsurance and excess primary and facultative reinsurance for large or otherwise unusual discrete property risks referred to as
individual risk. BHRG also writes retroactive reinsurance, which provides indemnification of losses and loss adjustment
expenses with respect to past loss events. Other multi-line business refers to other property and casualty business written on
both a quota-share and excess basis. Beginning in 2010, BHRG’s underwriting activities include life reinsurance as well as a life
annuity business, which in previous years was included in the finance and financial products segment. Amounts for 2009 and
2008 have been reclassified to conform to the current year presentation. BHRG’s underwriting results are summarized in the
table below. Amounts are in millions.
Premiums earned Pre-tax underwriting gain/loss
2010 2009 2008 2010 2009 2008
Catastrophe and individual risk .............................. $ 623 $ 823 $ 955 $260 $782 $ 776
Retroactive reinsurance .................................... 2,621 1,989 204 (90) (448) (414)
Other multi-line .......................................... 3,459 3,894 3,923 203 15 962
Life and annuity .......................................... 2,373 — — (197) (99) (102)
$9,076 $6,706 $5,082 $ 176 $ 250 $1,222
Catastrophe and individual risk contracts may provide exceptionally large limits of indemnification and cover catastrophe
risks (such as hurricanes, earthquakes or other natural disasters) or other property and liability risks. The timing and magnitude
of losses produces extraordinary volatility in periodic underwriting results of this business. Catastrophe and individual risk
premiums written were approximately $584 million in 2010, $725 million in 2009 and $1.1 billion in 2008. The level of
business that we write in a given period will vary significantly due to changes in market conditions and our management’s
assessment of the adequacy of premium rates. We constrained the volume of business written in 2010 as premium rates have not
been attractive enough to warrant increasing volume. However, we have the capacity and willingness to write substantially more
business when appropriate pricing can be obtained. Premiums earned from catastrophe and individual risk contracts in 2010
declined 24% from 2009 which declined 14% from 2008.
Underwriting results from catastrophe and individual risk business in 2010 included estimated losses of $322 million
arising from several significant property catastrophe and casualty loss occurrences in 2010. Underwriting results 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 results in 2008 also included a gain of $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.
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