Berkshire Hathaway 2015 Annual Report Download - page 83

Management’s Discussion and Analysis (Continued)
Insurance—Underwriting (Continued)
Berkshire Hathaway Reinsurance Group (Continued)
Life and annuity (Continued)
Periodic payment annuity contracts generated pre-tax underwriting losses of $202 million in 2015, $197 million in 2014
and $213 million in 2013. Generally, premiums under these contracts are received at inception and payments are made over
time, often extending for decades. No gains or losses are recognized in earnings at the inception of these contracts. Periodic
underwriting losses are primarily attributable to the recurring impact of the accretion of discounted annuity liabilities.
Underwriting results in each year also included pre-tax gains from foreign currency exchange rate changes of $103 million in
2015 and $102 million in 2014 and pre-tax losses of $62 million in 2013. These gains/losses reflected changes in foreign
currency denominated liabilities due to foreign currency exchange rate movements. Aggregate annuity liabilities were
approximately $8.7 billion at December 31, 2015, $7.1 billion at December 31, 2014 and $5.7 billion at December 31, 2013.
In 2015, life reinsurance premiums declined $74 million (5%) compared to 2014. Pre-tax underwriting losses from the life
reinsurance business in 2015 were $45 million, which included losses in connection with business that was terminated. In 2013,
life reinsurance underwriting results included a one-time pre-tax gain of $255 million related to an amendment to a reinsurance
contract, which resulted in the reversal of premiums earned, which was more than offset by the reversal of life benefits incurred
and the release of the liabilities for future losses.
Our variable annuity business consists of contracts that provide guarantees on closed blocks of variable annuity business
written by other insurers. Our initial contract was written in 2013 and produced premiums earned of $1.7 billion. The
underwriting gains in each of the past three years reflect the impacts of changes in equity markets and interest rates which
generally resulted in decreases in estimated liabilities for guaranteed minimum benefits. Periodic results from these contracts
can be volatile reflecting changes in investment market conditions, which impact the underlying insured exposures.
Berkshire Hathaway Primary Group
The Berkshire Hathaway Primary Group (“BH Primary”) consists of a wide variety of independently managed insurance
businesses. These businesses include: MedPro Group, providers of healthcare malpractice insurance coverages; National
Indemnity Company’s primary group (“NICO Primary”), writers of commercial motor vehicle and general liability coverages;
U.S. Investment Corporation, whose subsidiaries underwrite specialty insurance coverages; a group of companies referred to as
Berkshire Hathaway Homestate Companies (“BHHC”), providers of commercial multi-line insurance, including workers’
compensation; Berkshire Hathaway Specialty Insurance (“BH Specialty”), which concentrates on providing large scale
insurance solutions for commercial property and casualty risks; Applied Underwriters, a provider of integrated workers’
compensation solutions; Berkshire Hathaway GUARD Insurance Companies (“GUARD”), providers of workers’ compensation
and commercial property and casualty insurance coverages to small and mid-sized businesses; and Central States Indemnity
Company, a provider of credit and Medicare Supplement insurance.
Premiums earned in 2015 and 2014 increased by approximately $1.0 billion over the corresponding prior year. The
increases were primarily attributable to volume increases from BH Specialty, NICO Primary, BHHC and GUARD. The BH
Primary insurers produced aggregate pre-tax underwriting gains of $824 million in 2015, $626 million in 2014 and $385 million
in 2013. Combined loss ratios were 57% in 2015 and 60% in 2014 and 2013. Overall, the claim environment over the past three
years has been relatively favorable. However, these primary insurers write sizable amounts of liability and workers’
compensation business, which can have extended claim tails. It should not be assumed that the current claim experience or
underwriting results will continue into the future.
Insurance—Investment Income
A summary of net investment income generated by investments held by our insurance operations follows. Amounts are in
millions.
2015 2014 2013
Interest income .................................................................... $ 888 $1,009 $1,693
Dividend income .................................................................. 3,662 3,348 3,020
Investment income before taxes and noncontrolling interests ................................ 4,550 4,357 4,713
Income taxes and noncontrolling interests ............................................... 825 815 1,005
Net investment income .............................................................. $3,725 $3,542 $3,708
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