Berkshire Hathaway 2003 Annual Report Download - page 54

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Insurance — Underwriting (Continued)
GEICO (Continued)
element in GEICO’ s strategy to be a low cost insurer. In addition, GEICO strives to provide excellent service to
customers, with the goal of establishing long-term customer relationships.
GEICO’ s underwriting results for the past three years are summarized below. Dollars are in millions.
2003 2002 2001
Amount %Amount %Amount %
Premiums written ...................................................... $8,081 $6,963 $6,176
Premiums earned....................................................... $7,784 100.0 $6,670 100.0 $6,060 100.0
Losses and loss adjustment expenses........................ 5,955 76.5 5,137 77.0 4,842 79.9
Underwriting expenses.............................................. 1,377 17.7 1,117 16.8 997 16.5
Total losses and expenses.......................................... 7,332 94.2 6,254 93.8 5,839 96.4
Pre-tax underwriting gain.......................................... $ 452 $ 416 $ 221
Premiums earned in 2003 were $7,784 million, an increase of 16.7% over 2002, following an increase of
10.1% in 2002 over 2001. The growth in premiums earned in 2003 reflects a 10.9% increase in voluntary auto
policies-in-force during the past year and average premium rate increases of about two percent. During 2003, policies-
in-force increased 8.2% in the preferred risk auto line and 21.4% in the standard and nonstandard auto lines. Voluntary
auto new business sales in 2003 increased 20.3% compared to 2002. Voluntary auto policies-in-force at December 31,
2003 were 531,000 higher than at December 31, 2002 and reflect strong growth in the standard and nonstandard lines
during the last twelve months.
Losses and loss adjustment expenses incurred increased 15.9% to $5,955 million in 2003, following an
increase of 6.1% in 2002 over 2001. The loss ratio for property and casualty insurance, which measures the portion of
premiums earned that is paid or reserved for losses and related claims handling expenses, was 76.5% in 2003 compared
to 77.0% in 2002 and 79.9% in 2001. Claims frequencies in 2003 for physical damage and bodily injury coverages
have decreased in the two to five percent range from 2002 despite more weather related losses in 2003 resulting from
winter snowstorms, spring hailstorms and Hurricane Isabel. Bodily injury severity has increased in the six to eight
percent range over 2002 while physical damage severity has increased in the two to three percent range. Incurred
losses from catastrophe events for 2003 totaled approximately $57 million compared to $20 million in 2002 and $47
million in 2001.
Underwriting expenses increased 23.3% to $1,377 million in 2003 over 2002, which follows an increase of
12.0% in 2002 over 2001. Policy acquisition expenses increased 18.7% in 2003 to $731 million reflecting increased
advertising and increased staffing to handle the growth in policies-in-force. Other operating expenses were $646
million in 2003, up from $501 million in 2002 and reflect higher salary, profit sharing and other employee benefit
expenses.
General Re
General Re conducts a reinsurance business, which offers reinsurance coverage of essentially all types of
property, casualty, life and health risks in the United States and worldwide. General Re’ s principal reinsurance
operations are internally comprised of: (1) North American property/casualty, (2) international property/casualty,
which principally consists of business written through 89% owned Cologne Re, (3) London-market
property/casualty through the Faraday operations, and (4) global life/health.
General Re’ s pre-tax underwriting results for the past three years are summarized below. Dollars are in
millions.
Premiums earned Pre-tax underwriting gain (loss)
2003 2002 2001 2003 2002 2001
North American property/casualty....................... $3,551 $3,967 $3,968 $ 67 $(1,019) $(2,843)
International property/casualty ............................ 1,897 1,792 1,822 38 (315) (568)
Faraday (London-market) .................................... 950 855 575 (18) (4) (178)
Global life/health................................................... 1,847 1,886 1,988 58 (55) (82)
$8,245 $8,500 $8,353 $ 145 $(1,393) $(3,671)