Berkshire Hathaway 2014 Annual Report Download - page 110

Management’s Discussion (Continued)
Property and casualty losses (Continued)
General Re and BHRG (Continued)
Each of our reinsurance businesses has established practices to identify and gather needed information from clients in order
to establish adequate liability estimates. These practices include, for example, comparison of expected premiums to reported
premiums to help identify delinquent client reports and claim reviews to facilitate loss reporting and identify inaccurate or
incomplete claim reporting.
The timing of claim reporting to reinsurers is typically delayed in comparison with claim reporting to primary insurers. In
some instances, multiple reinsurers assume and cede parts of an underlying risk thereby causing multiple contractual
intermediaries between General Re or BHRG and the primary insured. In these instances, the claim reporting delays are
compounded. The relative impact of reporting delays on the reinsurer may vary depending on the type of coverage, contractual
reporting terms, and the magnitude of the claim relative to the attachment point of the reinsurance contract and for other
reasons.
Periodic premium and claims reports are often required from ceding companies. In the U.S., such reports are generally
required at quarterly intervals ranging from 30 to 90 days after the end of the accounting period. Outside the U.S., reinsurance
reporting practices vary. In certain countries, clients report annually, often 90 to 180 days after the end of the annual period.
Premium and loss data is provided through at least one intermediary (the primary insurer), so there is a risk that the loss
data provided is incomplete, inaccurate or the claim is outside the coverage terms. Information provided by ceding companies is
reviewed for completeness and compliance with the contract terms. Generally, BHRG and General Re are permitted under the
contracts to access the cedant’s books and records with respect to the subject business, thus providing us the ability to conduct
audits to determine the accuracy and completeness of information. Audits are conducted as we deem appropriate.
In the normal course of business, disputes with clients occasionally arise concerning whether certain claims are covered
under our reinsurance policies. We resolve most coverage disputes through the involvement of our claims department personnel
and the appropriate client personnel or through independent outside counsel. If disputes cannot be resolved, our contracts
generally specify whether arbitration, litigation, or an alternative dispute resolution process will be invoked. There are no
coverage disputes at this time for which an adverse resolution would likely have a material impact on our consolidated results of
operations or financial condition.
General Re
General Re’s gross and net unpaid losses and loss adjustment expenses and gross reserves by major line of business as of
December 31, 2014 are summarized below. Amounts are in millions.
Type Line of business
Reported case reserves ......................... $ 7,369 Workers’ compensation (1) ..................... $ 2,720
IBNR reserves ................................ 7,421 Mass tort-asbestos/environmental ............... 1,522
Gross unpaid losses and loss adjustment expenses .... 14,790 Auto liability ................................ 3,795
Ceded reinsurance receivables and deferred charges . . (784) Other casualty (2) ............................. 2,162
Net unpaid losses and loss adjustment expenses ...... $14,006 Other general liability ......................... 2,231
Property .................................... 2,360
Total ...................................... $14,790
(1) Net of discounts of $1,745 million.
(2) Includes directors and officers, errors and omissions, medical malpractice and umbrella coverage.
General Re’s loss reserve estimation process is based upon a ground-up approach, beginning with case loss estimates and
supplemented by additional case reserves (“ACRs”) and IBNR reserves. The critical processes in establishing loss reserves
involve the establishment of ACRs by claim examiners, the determination of expected ultimate loss ratios which drive IBNR
reserve amounts and the comparison of case reserve reporting trends to the expected loss reporting patterns. Recorded liabilities
are subject to “tail risk” where reported losses develop beyond the maximum expected loss emergence time period.
We do not routinely determine loss reserve ranges. We believe that the techniques necessary to make such determinations
have not sufficiently developed and that the myriad of assumptions required render such ranges to be unreliable.
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