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Management’s Discussion (Continued)
Insurance—Underwriting (Continued)
Berkshire Hathaway Reinsurance Group (Continued)
Underwriting results attributable to retroactive reinsurance include the recurring periodic amortization of deferred charges
that are established with respect to these contracts. At the inception of a contract, deferred charge assets are recorded as the
excess, if any, of the estimated ultimate losses payable over the premiums earned. Deferred charge balances are subsequently
amortized over the estimated claims payment period using the interest method, which reflects estimates of the timing and
amount of loss payments. The original estimates of the timing and amount of ultimate loss payments are periodically analyzed
against actual experience and revised based on an actuarial evaluation of the expected remaining losses. Amortization charges
and deferred charge adjustments resulting from changes to the estimated timing and amount of future loss payments are
included as a component of losses and loss adjustment expenses.
The underwriting losses from retroactive policies of $321 million in 2013 and $201 million in 2012 primarily represented
the amortization of deferred charges. In 2013, we increased undiscounted estimated liabilities by approximately $300 million
related to prior years’ contracts, which was partially offset by increases in related deferred charge balances. In 2011, the net
underwriting gain from retroactive reinsurance contracts of $645 million reflected the favorable impact of an $865 million
reduction in the estimated liabilities related to an adverse loss development contract with Swiss Re, which was attributable to
better than expected loss experience.
Gross unpaid losses from retroactive reinsurance contracts were approximately $17.7 billion as of December 31, 2013,
$18.0 billion at December 31, 2012 and $18.8 billion at December 31, 2011. At December 31, 2013 and 2012 unamortized
deferred charges related to BHRG’s retroactive reinsurance contracts were approximately $4.25 billion and $3.90 billion,
respectively.
Premiums earned from multi-line property/casualty business in 2013 declined $958 million (18%) compared to 2012, while
premiums earned in 2012 increased approximately $1.1 billion (26%) over 2011. As previously noted, the Swiss Re 20% quotashare
contract expired on December 31, 2012. As a result, premiums earned in 2013 from that contract declined $1.9 billion
(57%) compared with 2012. Premiums earned under the Swiss Re quota-share contract were $3.4 billion in 2012 and $2.9
billion in 2011. Premiums earned in 2013 from multi-line business, other than from the Swiss Re quota-share contract, increased
$981 million (52%) over 2012, which was primarily attributable to increased property quota-share business.
Multi-line property/casualty generated pre-tax underwriting gains of $655 million in 2013 and $295 million in 2012. This
business produced pre-tax underwriting losses of $338 million in 2011. Periodic underwriting results can be significantly
impacted by catastrophe losses and foreign currency transaction gains or losses associated with the changes in the valuation of
certain reinsurance liabilities of U.S.-based subsidiaries (including liabilities arising under retroactive reinsurance contracts),
which are denominated in foreign currencies.
Multi-line property/casualty underwriting results in 2013 included losses of $16 million from floods and a hailstorm in
Europe. Underwriting results in 2012 included estimated losses of $268 million from Hurricane Sandy. Catastrophe losses were
approximately $933 million in 2011, which arose primarily from the earthquakes in Japan ($375 million) and New Zealand
($300 million) and from floods in Thailand ($150 million). The catastrophe losses in 2011 and 2012 arose primarily under the
Swiss Re quota-share contract. Underwriting results included foreign currency transaction losses of $28 million in 2013 and
$123 million in 2012 and gains of $140 million in 2011.
Life and annuity premiums earned in 2013 increased $476 million (17%) over premiums earned in 2012. In 2013,
premiums earned included $1.7 billion received in connection with a new reinsurance contract which provides coverage of
guaranteed minimum death benefits on a portfolio of variable annuity reinsurance contracts that have been in run-off for a
number of years. Premiums earned in 2013 also included $1.4 billion from traditional annuity insurance and reinsurance
contracts that provide for streams of periodic payments in the future in exchange for upfront consideration. Annuity premiums
in 2012 were $794 million. These increases were partially offset by the reversal of premiums previously earned (approximately
$1.3 billion) under the Swiss Re Life & Health America Inc. (“SRLHA”) yearly renewable term life insurance contract as a
result of contract amendments in 2013. The amendments essentially commuted coverage with respect to a number of the
underlying contracts in exchange for payments to SRLHA of $675 million.
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