Berkshire Hathaway 2002 Annual Report Download - page 43

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Notes to Consolidated Financial Statements (Continued)
(9) Investment in Value Capital (Continued)
As discussed in Note 1(p), Berkshire has preliminarily concluded that Value Capital is a variable interest entity.
Accordingly, pursuant to the provisions of FIN 46, Berkshire will be required to consolidate the accounts of Value
Capital in the third quarter of 2003. This change will have no effect on reported net earnings but based upon December
31, 2002 balances will increase Berkshires reported assets by about $20 billion with a corresponding increase to
liabilities and minority interest.
(10) Unpaid losses and loss adjustment expenses
Supplemental data with respect to unpaid losses and loss adjustment expenses of property/casualty insurance
subsidiaries (in millions) is as follows. 2002 2001 2000
Unpaid losses and loss adjustment expenses:
Gross liabilities at beginning of year ................................................................ $40,716 $33,022 $26,802
Ceded losses and deferred charges.................................................................... (6,189) (5,590) (3,848)
Net balance........................................................................................................ 34,527 27,432 22,954
Incurred losses recorded:
Current accident year ........................................................................................ 12,206 15,608 15,252
All prior accident years ..................................................................................... 1,553 1,165 211
Total incurred losses ......................................................................................... 13,759 16,773 15,463
Payments with respect to:
Current accident year ........................................................................................ 4,042 4,435 4,589
All prior accident years ..................................................................................... 6,666 5,366 5,890
Total payments .................................................................................................. 10,708 9,801 10,479
Unpaid losses and loss adjustment expenses:
Net balance at end of year................................................................................. 37,578 34,404 27,938
Ceded losses and deferred charges.................................................................... 6,002 6,189 5,590
Foreign currency translation adjustment........................................................... 345 30 (722)
Net liabilities assumed in connection with business acquisitions.....................  93 216
Gross liabilities at end of year.............................................................................. $43,925 $40,716 $33,022
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 including estimates for incurred but not reported
(IBNR) claims. Considerable judgment is required to evaluate claims and establish estimated claim liabilities,
particularly with respect to certain lines of business, such as reinsurance assumed because of the inherent delays in
receiving loss information from ceding companies. Also, certain types of claims, such as asbestos, environmental or
latent injury liabilities are both long-tailed and subject to changing legal and settlement cost trends. Additional
information regarding incurred losses will be revealed over time and the estimates will be revised resulting in gains or
losses in the periods made.
Incurred losses all prior accident years reflects the amount of estimation error charged or credited to earnings in
each year with respect to the liabilities established as of the beginning of that year. During 2002, Berkshires insurance
subsidiaries recorded additional losses of $1,553 million in connection with claims occurring in years prior to 2002.
This amount includes $1,310 million arising from General Res North American and international property/casualty
business. The reserve increases were attributed to casualty lines of businesses.
Prior accident years losses incurred also include amortization of deferred charges related to retroactive
reinsurance contracts incepting prior to January 1, 2002. Amortization charges included in prior accident years losses
were $430 million in 2002, $328 million in 2001, and $145 million in 2000. The increases in such charges are the result
of several new contracts written over the past three years. Net discounted liabilities at December 31, 2002 and 2001
were $2,169 million and $1,834 million, respectively, and are net of discounts totaling $2,974 million and $2,653
million. Periodic accretions of these discounts are also a component of prior years losses incurred. The accretion of
discounted liabilities is included in incurred losses for all prior accident years and was approximately $95 million in
2002 and $80 million in both 2001 and 2000.