Note 16. Fair value measurements

Our financial assets and liabilities are summarized below as of March 31, 2016 and December 31, 2015 with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, receivable and accounts payable, accruals and other liabilities are considered to be reasonable estimates of their fair values.


	Carrying Value			Fair Value			Quoted Prices (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
March 31, 2016
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies		$	3,333		$	3,333		$	2,361		$	972		$	—
States, municipalities and political subdivisions			1,565			1,565			—			1,565			—
Foreign governments			10,458			10,458			8,083			2,375			—
Corporate bonds			7,828			7,828			—			7,723			105
Mortgage-backed securities			1,373			1,373			—			1,373			—
Investments in equity securities			106,420			106,420			106,384			35			1
Investment in Kraft Heinz common stock			15,810			25,567			25,567			—			—
Investment in Kraft Heinz Preferred Stock			7,710			8,446			—			—			8,446
Other investments			19,810			19,810			328			—			19,482
Loans and finance receivables			12,925			13,202			—			15			13,187
Derivative contract assets ⁽¹⁾			114			114			—			2			112
Derivative contract liabilities:
Railroad, utilities and energy ⁽¹⁾			267			267			10			214			43
Finance and financial products:
Equity index put options			4,348			4,348			—			—			4,348
Credit default			298			298			—			—			298
Notes payable and other borrowings:
Insurance and other			28,073			28,941			—			28,941			—
Railroad, utilities and energy			58,110			66,246			—			66,246			—
Finance and financial products			15,356			16,042			—			15,616			426
December 31, 2015
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies		$	3,427		$	3,427		$	2,485		$	942		$	—
States, municipalities and political subdivisions			1,764			1,764			—			1,764			—
Foreign governments			11,468			11,468			9,188			2,280			—
Corporate bonds			7,926			7,926			—			7,826			100
Mortgage-backed securities			1,442			1,442			—			1,442			—
Investments in equity securities			111,822			111,822			111,786			35			1
Investment in Kraft Heinz common stock			15,714			23,679			23,679			—			—
Investment in Kraft Heinz Preferred Stock			7,710			8,363			—			—			8,363
Other investments			21,717			21,717			315			—			21,402
Loans and finance receivables			12,772			13,112			—			16			13,096
Derivative contract assets ⁽¹⁾			103			103			—			5			98
Derivative contract liabilities:
Railroad, utilities and energy ⁽¹⁾			237			237			13			177			47
Finance and financial products:
Equity index put options			3,552			3,552			—			—			3,552
Credit default			284			284			—			—			284
Notes payable and other borrowings:
Insurance and other			14,599			14,773			—			14,773			—
Railroad, utilities and energy			57,739			62,471			—			62,471			—
Finance and financial products			11,951			12,363			—			11,887			476

⁽¹⁾

Assets are included in other assets and liabilities are included in accounts payable, accruals and other liabilities.

The fair values of substantially all of our financial instruments were measured using market or income approaches. Considerable judgment may be required in interpreting market data used to develop the estimates of fair value. Accordingly, the fair values presented are not necessarily indicative of the amounts that could be realized in an actual current market exchange. The use of alternative market assumptions and/or estimation methodologies may have a material effect on the estimated fair value. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below.

Level 1—Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2—Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector.

Level 3—Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and it may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in valuing assets or liabilities.

Reconciliations of assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three months ending March 31, 2016 and 2015 follow (in millions).


	Investments in fixed maturity securities				Investments in equity securities and other investments				Net derivative contract liabilities
Three months ending March 31, 2016
Balance at December 31, 2015		$	100			$	21,403			$	(3,785	)
Gains (losses) included in:
Earnings			—				—				(766	)
Other comprehensive income			2				(1,920	)			(6	)
Regulatory assets and liabilities			—				—				(6	)
Acquisitions, dispositions and settlements			4				—				(14	)
Transfers into/out of Level 3			(1	)			—				—

Balance at March 31, 2016		$	105			$	19,483			$	(4,577	)

Three months ending March 31, 2015
Balance at December 31, 2014		$	8			$	21,996			$	(4,759	)
Gains (losses) included in:
Earnings			—				—				1,347
Other comprehensive income			—				(1,445	)			1
Regulatory assets and liabilities			—				—				(3	)
Dispositions and settlements			(1	)			—				(24	)
Transfers into/out of Level 3			—				—				3

Balance at March 31, 2015		$	7			$	20,551			$	(3,435	)

Gains and losses included in earnings are included as components of investment gains/losses, derivative gains/losses and other revenues, as appropriate and are primarily related to changes in the fair values of derivative contracts and settlement transactions. Gains and losses included in other comprehensive income primarily represent the net change in unrealized appreciation of investments.

Quantitative information as of March 31, 2016, with respect to assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) follows (in millions).


	Fair Value		Principal Valuation Techniques	Unobservable Inputs	Weighted Average
Other investments:

Preferred stocks	$	14,995	Discounted cash flow	Expected duration	6 years

				Discount for transferability restrictions and subordination	134 basis points

Common stock warrants		4,487	Warrant pricing model	Discount for transferability and hedging restrictions	8%

Net derivative liabilities:

Equity index put options		4,348	Option pricing model	Volatility	21%

Credit default municipalities		298	Discounted cash flow	Credit spreads	31 basis points

Other investments consist of perpetual preferred stocks and common stock warrants that we acquired in a few relatively large private placement transactions. These investments are subject to contractual restrictions on transferability and may contain provisions that prevent us from economically hedging our investments. In applying discounted estimated cash flow techniques in valuing the perpetual preferred stocks, we made assumptions regarding the expected durations of the investments, as the issuers may have the right to redeem or convert these investments. We also made estimates regarding the impact of subordination, as the preferred stocks have a lower priority in liquidation than debt instruments of the issuers. In valuing the common stock warrants, we used a warrant valuation model. While most of the inputs to the model are observable, we are subject to the aforementioned contractual restrictions and we have applied discounts with respect to such restrictions. Increases or decreases to these inputs would result in decreases or increases to the fair values of the investments.

Our equity index put option and credit default contracts are illiquid and contain contract terms that are not standard in derivatives markets. For example, we are not required to post collateral under most of our contracts and many contracts have relatively long durations. For these and other reasons, we classified these contracts as Level 3. The methods we use to value these contracts are those that we believe market participants would use in determining exchange prices with respect to our contracts.

We value equity index put option contracts based on the Black-Scholes option valuation model. Inputs to this model include index price, contract duration and dividend and interest rate inputs (including a Berkshire non-performance input) which are observable. However, we believe that the valuation of long-duration options using any model is inherently subjective and, given the lack of observable transactions and prices, acceptable values may be subject to wide ranges. Expected volatility inputs represent our expectations, which consider the remaining duration of each contract and assume that the contracts will remain outstanding until the expiration dates without offsetting transactions occurring in the interim. Increases or decreases in the volatility inputs will produce increases or decreases in the fair values of the liabilities.