Berkshire Hathaway 2011 Annual Report Download - page 68

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Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
Property/casualty (Continued)
Underwriting results in 2009 included underwriting gains of $478 million from property business and losses of $178
million from casualty/workers’ compensation business. The net underwriting gain from property business was due to relatively
lower losses occurring in 2009 and reductions in estimated liabilities for prior years’ losses. The underwriting losses from
casualty/workers’ compensation business were primarily the result of establishing higher loss reserves for 2009 accident year
occurrences to reflect higher loss trends as well as $118 million of accretion of discounted workers’ compensation liabilities and
amortization of deferred charges, offset in part by overall reductions in estimated liabilities for losses occurring in prior years.
Life/health
Premiums earned in 2011 were $2,875 million, an increase of 5.9% over 2010, while premiums earned in 2010 increased
3.4% over 2009. Adjusting for the effects of foreign currency exchange rate changes, premiums earned increased 2.2% over
2010, which increased 4.8% over 2009. The increases in premiums earned since 2009 were primarily due to higher volumes of
international life business, which in 2011 represented about 60% of aggregate life/health premiums earned. The life/health
operations produced net underwriting gains of $137 million in 2011, $163 million in 2010 and $177 million in 2009.
Underwriting results for 2011 included losses of $15 million attributable to the earthquake in Japan. Underwriting results in
each of the past three years were driven by generally lower than expected mortality in the life business.
Berkshire Hathaway Reinsurance Group
Through BHRG, 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 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 and includes a
quota-share contract with Swiss Reinsurance Company Ltd. (“Swiss Re”) covering a 20% share of substantially all of Swiss
Re’s property/casualty risks incepting between January 1, 2008 and December 31, 2012. We currently do not anticipate that the
Swiss Re quota-share contract will be renewed or extended. BHRG’s underwriting activities also include life reinsurance as well
as a life annuity business. BHRG’s underwriting results are summarized in the table below. Amounts are in millions.
Premiums earned Pre-tax underwriting gain/loss
2011 2010 2009 2011 2010 2009
Catastrophe and individual risk .............................. $ 751 $ 623 $ 823 $(321) $ 260 $ 782
Retroactive reinsurance .................................... 2,011 2,621 1,989 645 (90) (448)
Other multi-line property/casualty ............................ 4,224 3,459 3,894 (338) 203 15
Life and annuity .......................................... 2,161 2,373 — (700) (197) (99)
$9,147 $9,076 $6,706 $(714) $ 176 $ 250
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 $720 million in 2011, $584 million in 2010 and
$725 million in 2009. The level of business written in a given period will vary significantly due to changes in market conditions
and management’s assessment of the adequacy of premium rates. We have constrained the volume of business written in recent
years as premium rates have not been attractive enough to warrant significantly increasing volume. However, we have the
capacity and desire to write substantially more business when appropriate pricing can be obtained. Premiums earned in 2011
from catastrophe and individual risk contracts increased 21% compared with 2010, which declined 24% from 2009. The
increase in premiums written and earned in 2011 was primarily attributable to a few new contracts and to relatively higher
premiums to reinstate coverage with respect to contracts that suffered catastrophe losses.
Catastrophe and individual risk underwriting results in 2011 included estimated catastrophe losses of approximately $800
million attributable to the earthquakes in Japan and New Zealand. Underwriting results from catastrophe and individual risk
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