Berkshire Hathaway 1999 Annual Report Download - page 36

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(8) Unpaid losses and loss adjustment expenses (Continued)
The balances of unpaid losses and loss adjustment expenses are based upon estimates of the ultimate claim costs
associated with claim occurrences as of the balance sheet dates. Considerable judgement is required to evaluate claims and
establish estimated claim liabilities, particularly with respect to certain lines of business, such as reinsurance assumed, or
certain types of claims, such as environmental or latent injury liabilities.
Berkshire continuously evaluates its liabilities and related reinsurance recoverable for environmental and latent injury
claims and claim expenses, which arise from exposures in the U.S., as well as internationally. Environmental and latent
injury exposures do not lend themselves to traditional methods of loss development determination and therefore reserve
estimates related to these exposures may be considerably less reliable than for other lines of business (e.g., automobile). The
effect of joint and several liability claims severity and a provision for inflation have been included in the loss development
estimate. The Company has also established a liability for litigation costs associated with coverage disputes arising out of
direct insurance policies.
The liabilities for environmental and latent injury claims and claim expenses net of related reinsurance recoverables
were $3,211 million and $1,913 million, respectively, at December 31, 1999 and 1998. The liabilities recorded for
environmental and latent injury claims and claim expenses are management’s best estimate of future ultimate claim an d
claim expense payments and recoveries and are expected to develop over the next several decades.
Berkshire monitors evolving case law and its effect on environmental and latent injury claims. Changing government
regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other
factors could result in significant amounts of adverse development of the balance sheet liabilities. Such development could
be material to Berkshire’s results of operations. It is not possible to estimate reliably the amount of additional net loss, or
the range of net loss, that is reasonably possible.
(9) Income taxes
The liability for income taxes as reflected in the accompanying Consolidated Balance Sheets is as follows (in
millions):
Dec. 31, Dec. 31,
1999 1998
Payable currently ................................... $ (27) $ 1,006
Deferred ......................................... 9,593 10,756
$9,566 $11,762
The Consolidated Statements of Earnings reflect charges for income taxes as shown below (in millions):
1999 1998 1997
Federal ......................................................... $ 748 $1,421 $865
State ........................................................... 43 31 32
Foreign ......................................................... 61 5 1
$ 852 $1,457 $898
Current ......................................................... $1,189 $1,643 $692
Deferred ........................................................ (337) (186) 206
$ 852 $1,457 $898