Berkshire Hathaway 2015 Annual Report Download - page 78

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Management’s Discussion and Analysis (Continued)
Insurance—Underwriting
We engage in both primary insurance and reinsurance of property/casualty, life and health risks. In primary insurance
activities, we assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks. In
reinsurance activities, we assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected
themselves to in their own insuring activities. Our insurance and reinsurance businesses are: (1) GEICO, (2) General Re,
(3) Berkshire Hathaway Reinsurance Group (“BHRG”) and (4) Berkshire Hathaway Primary Group.
Our management views insurance businesses as possessing two distinct operations – underwriting and investing.
Underwriting decisions are the responsibility of the unit managers; investing decisions, with limited exceptions, are the
responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett. Accordingly, we evaluate performance of underwriting
operations without any allocation of investment income or investment gains/losses.
The timing and amount of catastrophe losses can produce significant volatility in our periodic underwriting results,
particularly with respect to BHRG and General Re. We define pre-tax catastrophe losses in excess of $100 million from a single
event or series of related events as significant. In 2015, we recorded estimated losses of $136 million in connection with a
property loss event in China. In 2014, we did not incur any significant catastrophe losses. In 2013, we incurred pre-tax losses of
$436 million related to two catastrophe events in Europe. Our periodic underwriting results may be affected significantly by
changes in estimates for unpaid losses and loss adjustment expenses, including amounts established for occurrences in prior
years. Actual claim settlements and revised loss estimates will develop over time, which will likely differ from the liability
estimates recorded as of year-end (approximately $73.1 billion). Accordingly, the unpaid loss estimates recorded as of
December 31, 2015 may develop upward or downward in future periods, producing a corresponding decrease or increase to pre-
tax earnings.
Our periodic underwriting results may also include significant foreign currency transaction gains and losses arising from
the changes in the valuation of non-U.S. Dollar denominated reinsurance liabilities of our U.S. based insurance subsidiaries as a
result of foreign currency exchange rate fluctuations. Foreign currency exchange rates can be volatile and the resulting impact
on our underwriting earnings can be relatively significant.
A key marketing strategy of our insurance businesses is the maintenance of extraordinary capital strength. A measure of
capital strength is combined shareholders’ equity determined pursuant to statutory accounting rules (“Statutory Surplus”).
Statutory Surplus of our insurance businesses was approximately $124 billion at December 31, 2015. This superior capital
strength creates opportunities, especially with respect to reinsurance activities, to negotiate and enter into insurance and
reinsurance contracts specially designed to meet the unique needs of insurance and reinsurance buyers. Underwriting results
from our insurance businesses are summarized below. Amounts are in millions.
2015 2014 2013
Underwriting gain attributable to:
GEICO ...................................................................... $ 460 $1,159 $1,127
General Re ................................................................... 132 277 283
Berkshire Hathaway Reinsurance Group ............................................ 421 606 1,294
Berkshire Hathaway Primary Group ............................................... 824 626 385
Pre-tax underwriting gain ............................................................ 1,837 2,668 3,089
Income taxes and noncontrolling interests ............................................... 675 976 1,094
Net underwriting gain ....................................................... $1,162 $1,692 $1,995
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