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Derivative contracts

We are party to derivative contracts through certain of our subsidiaries. Currently, the most significant derivative contracts consist of equity index put option contracts. The liabilities and related notional values of these contracts follows (in millions).


	Liabilities		Notional Value
December 31, 2018	$	2,452	$	26,759
December 31, 2017		2,172		28,753

Notional value represents the aggregate undiscounted amounts payable assuming that the value of each index is zero at each contract’s expiration date. Certain of these contracts are denominated in foreign currencies. Notional amounts are based on the foreign currency exchange rates as of each balance sheet date.

We recorded derivative contract losses of $300 million in 2018 and gains of $718 million in 2017, with respect to our equity index put option contracts. The losses in 2018 were primarily due to decreases in equity index values during the fourth quarter. Derivative contract gains in 2016 were $751 million, which included $662 million related to equity index put option contracts and $89 million related to a credit default contract that was terminated.

The equity index put option contracts are European style options written prior to March 2008 on four major equity indexes. The remaining contracts expire between April 2019 and October 2025. At December 31, 2018, the remaining weighted average life of all contracts was approximately 1.9 years. In 2018, one equity index put option contract expired and another contract was terminated by mutual agreement with the counterparty. These contracts had an aggregate notional value of approximately $1.2 billion. Contracts with notional values of $12.2 billion will expire in 2019.

Future payments, if any, under any given contract will be required if the prevailing index value is below the contract strike price at the expiration date. We received aggregate premiums of $4.0 billion on the remaining contracts at the contract inception dates and we have no counterparty credit risk. The aggregate intrinsic value (the undiscounted liability assuming the contracts are settled based on the index values and foreign currency exchange rates as of the balance sheet date) was $1,653 million at December 31, 2018 and $789 million at December 31, 2017. These contracts may not be unilaterally terminated or fully settled before the expiration dates and the ultimate amount of cash basis gains or losses on these contracts will not be determined until the contract expiration dates.

A limited number of our equity index put option contracts contain collateral posting requirements with respect to changes in the fair value or intrinsic value of the contracts and/or a downgrade of Berkshire’s credit ratings. As of December 31, 2018, we did not have any collateral posting requirements. If Berkshire’s credit ratings (currently AA from Standard & Poor’s and Aa2 from Moody’s) are downgraded below either A- by Standard & Poor’s or A3 by Moody’s, collateral of up to $1.1 billion could be required to be posted.

Our regulated utility subsidiaries are exposed to variations in the prices of fuel required to generate electricity, wholesale electricity purchased and sold and natural gas supplied for customers. We may use forward purchases and sales, futures, swaps and options to manage a portion of these price risks. Most of the net derivative contract assets or liabilities of our regulated utilities are probable of recovery through rates and are offset by regulatory liabilities or assets. Derivative contract assets are included in other assets and were $172 million as of December 31, 2018 and $142 million as of December 31, 2017. Derivative contract liabilities are included in accounts payable, accruals and other liabilities and were $111 million as of December 31, 2018 and $82 million as of December 31, 2017.