(14)

Unpaid losses and loss adjustment expenses

The liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under our short duration property and casualty insurance and reinsurance contracts are based upon estimates of the ultimate claim costs associated with claim occurrences as of the balance sheet date and include estimates for incurred-but-not-reported (“IBNR”) claims. A reconciliation of the changes in claim liabilities for each of the three years ending December 31, 2016 is as follows (in millions).


	2016			2015			2014
Unpaid losses and loss adjustment expenses—beginning of year:
Gross liabilities	$	73,144		$	71,477		$	64,866
Reinsurance recoverable and deferred charges		(10,994	)		(10,888	)		(7,414	)

Net balance		62,150			60,589			57,452

Incurred losses and loss adjustment expenses recorded during the year:
Current accident year events		30,636			27,829			24,335
Prior accident years’ events		(1,512	)		(2,014	)		(2,280	)
Retroactive reinsurance and discount accretion		1,782			712			4,351

Total incurred losses and loss adjustment expenses		30,906			26,527			26,406

Paid losses and loss adjustment expenses during the year with respect to:
Current accident year events		(14,898	)		(13,070	)		(11,291	)
Prior accident years’ events		(10,958	)		(10,268	)		(10,297	)
Retroactive reinsurance		(1,130	)		(1,151	)		(1,082	)

Total payments		(26,986	)		(24,489	)		(22,670	)

Foreign currency translation adjustment		(537	)		(545	)		(666	)
Business acquisitions		—			68			67

Unpaid losses and loss adjustment expenses—end of year:
Net balance		65,533			62,150			60,589
Reinsurance recoverable and deferred charges		11,385			10,994			10,888

Gross liabilities	$	76,918		$	73,144		$	71,477

Incurred losses and loss adjustment expenses in the preceding table reflect the losses and loss adjustment expenses recorded in earnings in each year related to insured events occurring in the current year and in prior years. We present incurred and paid losses under retroactive reinsurance contracts and discount accretion separately. Such amounts relate to prior years’ underlying loss events. Additionally, we discount unpaid losses from certain workers’ compensation reinsurance contracts. Discounted workers’ compensation liabilities at December 31, 2016 and 2015 were approximately $1.9 billion and $2.0 billion, respectively, reflecting net discounts of $1.4 billion and $1.6 billion.

Incurred losses and loss adjustment expenses reflected reductions for prior years’ insured events of approximately $1.5 billion in 2016, $2.0 billion in 2015 and $2.3 billion in 2014. In each year, these reductions derived from our direct insurance business (including private passenger automobile and medical malpractice and workers’ compensation coverages), as well as from reinsurance business. The reductions for our reinsurance business were primarily attributable to lower than expected reported losses from ceding companies with respect to property coverages.

Estimated claim liabilities for environmental, asbestos and other latent injury exposures, net of reinsurance recoverables, were approximately $15.3 billion at December 31, 2016 and $14.0 billion at December 31, 2015, and included approximately $13.7 billion at December 31, 2016 and $12.4 billion at December 31, 2015 from retroactive reinsurance contracts. Retroactive reinsurance contracts are generally subject to aggregate policy limits and thus, our exposure to such claims under these contracts is likewise limited. We monitor evolving case law and its effect on environmental and other latent injury claims. Changing government regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors could result in increases in these liabilities. Such development could be material to our results of operations. We are unable to reliably estimate the amount of additional net loss or the range of net loss that is reasonably possible.

A reconciliation of certain net unpaid losses and allocated loss adjustment expenses (the latter referred to as “ALAE”) of GEICO, General Re, Berkshire Hathaway Reinsurance Group (“BHRG”) and Berkshire Hathaway Primary Group (“BH Primary”) to our consolidated unpaid losses and loss adjustment expenses as of December 31, 2016, along with a discussion regarding each group’s liability estimation processes, follows.


	December 31, 2016
	(in millions)
Unpaid losses and ALAE, net of reinsurance recoverable:
GEICO	$	12,981
General Re		13,973
BHRG		10,172
BH Primary		10,173	$	47,299

Reinsurance recoverable:
GEICO		1,084
General Re		611
BHRG		121
BH Primary		1,099		2,915

Retroactive reinsurance, unpaid losses and loss adjustment expenses				24,675
Other short-duration contracts, unpaid losses and loss adjustment expenses				1,390
Discount on workers’ compensation reinsurance liabilities				(1,433	)
Unpaid unallocated loss adjustment expenses				2,072

Unpaid losses and loss adjustment expenses			$	76,918

GEICO

For GEICO, we establish and evaluate unpaid claim liabilities using standard actuarial loss development methods and techniques. The actuarial methods utilize historical claims data, adjusted when deemed appropriate to reflect perceived changes in loss patterns.

We establish average liabilities based on expected severities for newly reported physical damage and liability claims prior to establishing an individual case reserve when we have insufficient time and information to make specific claim estimates and for a large number of minor physical damage claims that are paid shortly after being reported. We establish liability case loss estimates, which includes loss adjustment expenses, once the facts and merits of the claim are evaluated.

Estimates for liability coverages are more uncertain primarily due to the longer claim-tails, the greater chance of protracted litigation and the incompleteness of facts at the time the case estimate is first established. The “claim-tail” is the time period between the claim occurrence date and settlement date. As a result, we establish additional case development liabilities, which are usually percentages of the case liabilities. For unreported claims, IBNR liabilities are estimated by projecting the ultimate number of claims expected (reported and unreported) for each significant coverage and deducting reported claims to produce estimated unreported claims. The product of the average cost per unreported claim and the number of unreported claims produces the IBNR liability estimate. We may record supplemental IBNR liabilities in certain situations when actuarial techniques are difficult to apply.

GEICO’s claims are counted when accidents that may result in a liability are reported and are based on policy coverage. Each claim event may generate claims under multiple coverages, and thus may result in multiple counts. The “Cumulative Number of Reported Claims” in the table which follows includes the combined number of reported claims for all policy coverages and excludes projected IBNR claims.

GEICO’s claim liabilities predominantly relate to various types of private passenger auto liability and physical damage claims. Aggregate incurred and paid loss and ALAE data by accident year for these claims, net of reinsurance, follows. IBNR and case development liabilities are as of December 31, 2016. Dollars are in millions.


Accident Year	Incurred Losses and ALAE through December 31,										IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
Accident Year	2012*		2013*		2014*		2015*		2016		IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
2012	$	12,034	$	11,904	$	11,893	$	11,906	$	11,900	$	79		6,459
2013				12,990		12,815		12,859		12,837		184		7,102
2014						14,597		14,488		14,477		539		7,965
2015								16,807		16,798		1,394		8,891
2016										18,982		3,132		9,336

		Incurred losses and ALAE							$	74,994


Accident Year	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2012*		2013*		2014*		2015*		2016
2012	$	7,550	$	9,832	$	10,744	$	11,311	$	11,609
2013				7,944		10,494		11,569		12,174
2014						9,133		11,956		13,060
2015								10,543		13,785
2016										11,927

		Paid losses and ALAE								62,555

Net unpaid losses and ALAE for 2012—2016 accident years										12,439
Net unpaid losses and ALAE for accident years before 2012*										542

Net unpaid losses and ALAE									$	12,981

*	Unaudited supplemental information

General Re

General Re’s liabilities for unpaid losses and loss adjustment expenses include case and IBNR estimates and primarily relate to casualty and workers’ compensation coverages. Case losses are reported under reinsurance contracts either individually or in bulk as provided under the terms of the contracts. We independently evaluate reported loss amounts and if deemed appropriate, we establish case liabilities based on our estimates.

We primarily use Bornhuetter—Ferguson methods to estimate IBNR amounts for claims liabilities. The expected case loss emergence patterns and expected loss ratios are the critical assumptions applicable to these estimates. Once the annual IBNR liabilities are determined, we estimate the expected case loss emergence for the next calendar year based on the prior year-end expected loss emergence patterns and expected loss ratios. Liability estimates also include estimates of the impact of major catastrophe events as they become known, which rely more on a per-policy assessment of the ultimate cost associated with the individual loss event. Claim count data is excluded, as such information is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable.

General Re’s incurred and paid loss and ALAE data by accident year, net of reinsurance, is presented in the following tables. IBNR and case development liabilities are as of December 31, 2016. Dollars are in millions.


Accident Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities
Accident Year	2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016		IBNR and Case Development Liabilities
2007	$	1,857	$	1,915	$	1,852	$	1,746	$	1,673	$	1,619	$	1,574	$	1,559	$	1,535	$	1,512	$	73
2008				1,920		2,011		1,903		1,818		1,746		1,713		1,669		1,648		1,635		93
2009						1,703		1,790		1,704		1,601		1,523		1,490		1,471		1,431		125
2010								1,881		2,055		1,939		1,845		1,757		1,712		1,674		156
2011										2,102		2,126		1,897		1,792		1,744		1,669		208
2012												1,810		1,850		1,707		1,603		1,535		335
2013														1,945		2,095		1,994		1,854		417
2014																1,740		1,843		1,794		578
2015																		1,811		1,999		777
2016																				1,715		1,173

						Incurred losses and ALAE													$	16,818


Accident Year	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016
2007	$	282	$	821	$	1,020	$	1,132	$	1,195	$	1,238	$	1,291	$	1,309	$	1,322	$	1,335
2008				330		894		1,074		1,187		1,246		1,289		1,315		1,330		1,354
2009						264		734		897		994		1,065		1,115		1,145		1,161
2010								247		782		997		1,147		1,243		1,304		1,359
2011										302		841		1,086		1,190		1,259		1,317
2012												199		664		829		916		991
2013														275		829		1,060		1,162
2014																171		666		864
2015																		207		693
2016																				171

						Paid losses and ALAE														10,407

				Net unpaid losses and ALAE for 2007—2016 accident years																6,411
				Net unpaid losses and ALAE for accident years before 2007*																7,562

				Net unpaid losses and ALAE															$	13,973

*	Unaudited supplemental information

BHRG

BHRG’s liabilities for losses and ALAE are principally a function of reported losses from ceding companies and IBNR and case development liability estimates which are based on expected loss ratios established on a portfolio basis. Liability estimates also include estimates of the impact of major catastrophe events, as they become known, which rely more on a per-policy assessment of the ultimate cost associated with the individual loss event. The expected loss ratios are based upon management’s judgment considering the type of business covered, analysis of each ceding company’s loss history and evaluation of the portion of the underlying contracts that we reinsure. Claim count data is excluded, as such information is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable.

BHRG’s incurred and paid loss and ALAE data by accident year, net of reinsurance, is presented in the following tables. IBNR and case development liabilities are as of December 31, 2016. Dollars are in millions.


Accident Year	Incurred Losses and ALAE through December 31,**																				IBNR and Case Development Liabilities
Accident Year	2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016		IBNR and Case Development Liabilities
2007	$	1,810	$	1,756	$	1,659	$	1,658	$	1,652	$	1,590	$	1,583	$	1,560	$	1,500	$	1,471	$	133
2008				3,388		3,130		2,988		2,903		2,835		2,748		2,683		2,605		2,578		244
2009						2,974		2,858		2,989		2,926		2,847		2,759		2,691		2,668		215
2010								2,876		2,974		2,883		2,771		2,610		2,575		2,551		238
2011										4,418		4,544		4,358		4,440		4,389		4,365		452
2012												4,054		3,878		3,648		3,583		3,531		694
2013														3,326		3,144		2,935		2,832		733
2014																2,688		2,585		2,492		736
2015																		3,207		3,070		1,113
2016																				3,390		1,907

						Incurred losses and ALAE													$	28,948


Accident Year	Cumulative Paid Losses and ALAE through December 31,**
Accident Year	2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016
2007	$	171	$	677	$	891	$	993	$	1,055	$	1,120	$	1,170	$	1,196	$	1,211	$	1,221
2008				364		1,146		1,617		1,836		1,976		2,056		2,131		2,205		2,228
2009						372		1,182		1,605		1,937		2,147		2,306		2,336		2,363
2010								193		889		1,414		1,736		2,041		2,119		2,177
2011										552		2,130		2,872		3,315		3,475		3,600
2012												360		1,279		2,080		2,350		2,519
2013														516		1,070		1,555		1,774
2014																437		1,031		1,319
2015																		550		1,354
2016																				778

						Paid losses and ALAE														19,333

				Net unpaid losses and ALAE for 2007—2016 accident years																9,615
				Net unpaid losses and ALAE for accident years before 2007*																557

				Net unpaid losses and ALAE															$	10,172

*	Unaudited supplemental information

**	Excludes retroactive reinsurance losses and ALAE

BH Primary

BH Primary’s liabilities for unpaid losses and ALAE primarily derive from workers’ compensation, medical professional and other liability insurance. Other liability insurance includes commercial auto and general liability policies. We periodically evaluate ultimate unpaid loss and ALAE estimates for the workers’ compensation and general liability lines using a combination of commonly accepted actuarial methodologies, such as the Bornhuetter—Ferguson and chain-ladder approaches using paid and incurred loss data. Paid and incurred loss data is segregated into groups such as coverages, territories or other characteristics. We establish case liabilities for reported claims based upon the facts and circumstances of the claim. The excess of the ultimate projected losses, including the expected development of case estimates, and the case-basis liabilities is included in IBNR liabilities. For medical professional liabilities, we use a combination of the aforementioned methods, as well as other loss severity based methods. From these estimates, we determine our best estimate. Periodically, we study developments in older accident years and adjust initial loss estimates to reflect recent development based upon claim age, coverage and litigation experience. The cumulative number of reported claims reflects the number of individual claimants, and includes claim that ultimately result in no liability or payment.

BH Primary’s incurred and paid loss and ALAE data by accident year, net of reinsurance, is presented in the following tables. IBNR and case development liabilities are as of December 31, 2016. Dollars are in millions.


Accident Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
Accident Year	2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016		IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
2007	$	1,328	$	1,233	$	1,174	$	1,090	$	955	$	901	$	852	$	817	$	788	$	775	$	46		137
2008				1,349		1,273		1,228		1,168		1,081		1,015		979		948		920		80		136
2009						1,298		1,211		1,180		1,159		1,068		1,020		966		936		99		117
2010								1,268		1,186		1,191		1,129		1,062		994		956		150		111
2011										1,888		1,633		1,605		1,452		1,375		1,297		223		109
2012												2,129		2,079		2,017		1,944		1,903		453		135
2013														2,294		2,213		2,133		2,060		595		150
2014																2,967		2,780		2,730		1,027		177
2015																		3,575		3,458		1,631		188
2016																				4,149		2,682		135

						Incurred losses and ALAE													$	19,184


Accident Year	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2007*		2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016
2007	$	128	$	284	$	409	$	510	$	578	$	628	$	660	$	679	$	696	$	705
2008				174		333		464		578		662		728		772		795		810
2009						147		305		445		569		655		726		771		798
2010								146		313		458		570		657		722		758
2011										163		396		602		753		898		973
2012												211		598		844		1,053		1,208
2013														350		706		985		1,197
2014																453		896		1,247
2015																		502		1,078
2016																				634

						Paid losses and ALAE														9,408

				Net unpaid losses and ALAE for 2007—2016 accident years																9,776
				Net unpaid losses and ALAE for accident years before 2007*																397

				Net unpaid losses and ALAE															$	10,173

*	Unaudited supplemental information

Supplemental unaudited average historical claims duration information based on the net losses and ALAE incurred and paid accident year data in the preceding tables follows. The percentages show the average portions of net losses and ALAE paid by each succeeding year, with year 1 representing the current accident year.


	Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
In Years	1			2			3			4			5			6			7			8			9			10
GEICO		62.2	%		19.6	%		8.0	%		4.8	%		2.7	%
Gen Re		14.8	%		31.0	%		12.2	%		6.8	%		4.6	%		3.2	%		2.6	%		1.1	%		1.2	%		0.9	%
BHRG		14.7	%		28.2	%		17.2	%		9.4	%		6.3	%		3.9	%		2.4	%		1.9	%		1.0	%		0.7	%
BH Primary		15.4	%		17.8	%		14.5	%		11.9	%		9.2	%		6.8	%		4.3	%		2.6	%		1.9	%		1.2	%

Retroactive Reinsurance

BHRG’s retroactive reinsurance contracts cover underlying loss events that occurred prior to the contract inception date, which are paid immediately after the contract date or once a contractual retention amount has been reached. As of December 31, 2016 approximately 83% of gross unpaid losses pertained to underlying loss events that occurred prior to January 2007. We do not believe that analysis of losses incurred and paid by accident year of the underlying event is relevant or meaningful given that our exposure to losses incepts when the contract incepts. Further, we believe the classifications of reported claims and case development liabilities has no practical analytical value.

In establishing retroactive reinsurance liabilities, we often analyze historical aggregate loss payment patterns and project losses into the future under various scenarios. We expect the claim-tail to be very long for many contracts, with some lasting several decades. We assign judgmental probability factors to these aggregate loss payment scenarios and an expectancy outcome is determined. We monitor claim payment activity and review ceding company reports and other information concerning the underlying losses. Since the expected claim-tails are often very long, we reassess and revise the expected timing and amounts of ultimate losses periodically or when significant events are revealed through our monitoring and review processes.

Incurred losses and loss adjustment expenses attributable to retroactive reinsurance contracts included $1.26 billion in 2016 and $3.43 billion in 2014 from new contracts written in those years. Incurred losses related to retroactive reinsurance contracts written in prior years were $440 million in 2016, $631 million in 2015 and $831 million in 2014, which included recurring amortization of deferred charges and the effect of changes in the timing and amount of expected future loss payments.