Unpaid losses and loss adjustment expenses

12 Months Ended

Dec. 31, 2018

Insurance [Abstract]

Unpaid losses and loss adjustment expenses

(15) Unpaid losses and loss adjustment expenses

Our liabilities for unpaid losses and loss adjustment expenses (also referred to as “claim liabilities”) under 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, excluding liabilities under retroactive reinsurance contracts (see Note 16), for each of the three years ending December 31, 2018 is as follows (in millions).

	2018			2017			2016
Balances – beginning of year:
Gross liabilities	$	61,122		$	53,379		$	50,519
Reinsurance recoverable on unpaid losses		(3,201	)		(3,338	)		(3,307	)
Net liabilities		57,921			50,041			47,212
Incurred losses and loss adjustment expenses:
Current accident year events		39,876			37,702			30,636
Prior accident years’ events		(1,406	)		(544	)		(1,443	)
Total incurred losses and loss adjustment expenses		38,470			37,158			29,193
Paid losses and loss adjustment expenses:
Current accident year events		(18,391	)		(17,425	)		(14,898	)
Prior accident years’ events		(15,452	)		(12,507	)		(10,929	)
Total payments		(33,843	)		(29,932	)		(25,827	)
Foreign currency translation adjustment		(331	)		654			(537	)
Business acquisition		3,181			—			—
Balances – end of year:
Net liabilities		65,398			57,921			50,041
Reinsurance recoverable on unpaid losses		3,060			3,201			3,338
Gross liabilities	$	68,458		$	61,122		$	53,379

Incurred losses and loss adjustment expenses in the preceding table were recorded in earnings in each period and related to insured events occurring in the current year (“current accident year”) and events occurring in all prior years (“prior accident years”). Current accident year losses in 2018 included $1.6 billion from four significant catastrophe events, while current accident year losses in 2017 included approximately $3 billion from six significant catastrophe events during that year. As discussed in Note 2, NICO acquired MLMIC, a writer of medical professional liability insurance, on October 1, 2018.

Incurred losses and loss adjustment expenses from the net reductions of estimated ultimate liabilities for prior accident years were $1,406 million in 2018, $544 million in 2017 and $1,443 million in 2016. These reductions, as percentages of the net liabilities at the beginning of each year, were 2.4% in 2018, 1.1% in 2017 and 3.1% in 2016.

Estimated ultimate liabilities for prior years’ loss events related to primary insurance were decreased $937 million in 2018, $249 million in 2017 and $569 million in 2016. These decreases were primarily attributable to lower than anticipated medical malpractice and workers’ compensation losses. Liabilities for prior years’ private passenger auto claims were also reduced in 2018 and 2016, but were increased in 2017.

Estimated ultimate liabilities for prior years’ loss events related to property and casualty reinsurance were reduced $469 million in 2018, $295 million in 2017 and $874 million in 2016. The decrease in 2017 was net of increased losses from a United Kingdom government-mandated change to the computation of certain personal injury lump sum settlements and higher than expected property losses.

Estimated claim liabilities for environmental, asbestos and other latent injury exposures, net of reinsurance recoverable, were approximately $1.7 billion at December 31, 2018 and $1.6 billion at December 31, 2017. These liabilities are subject to change due to changes in the legal and regulatory environment as described in Note 16. We are unable to reliably estimate additional losses or a range of losses that are reasonably possible for these claims.

A reconciliation of the disaggregated net unpaid losses and allocated loss adjustment expenses (the latter referred to as “ALAE”) of GEICO, 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, 2018, follows (in millions).

	GEICO		BHRG Property		BHRG Casualty		BH Primary Medical Professional Liability		BH Primary Workers’ Compensation and Other Casualty		Total
Unpaid losses and ALAE, net	$	17,318	$	9,395	$	19,966	$	7,288	$	8,694	$	62,661
Reinsurance recoverable		896		312		850		53		940		3,051
Unpaid unallocated loss adjustment expenses												2,015
Other unpaid losses and loss adjustment expenses												731
Unpaid losses and loss adjustment expenses											$	68,458

GEICO

GEICO’s claim liabilities predominantly relate to various types of private passenger auto liability and physical damage claims. For such claims, 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. Claim liabilities include average, case, case development and IBNR estimates.

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 or information to make specific claim estimates and for a large number of minor physical damage claims that once reported are quickly settled. 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. Consequently, 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 incurred and paid losses and ALAE, net of reinsurance, are summarized by accident year below. IBNR and case development liabilities are as of December 31, 2018. Claim counts are established 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” includes the combined number of reported claims for all policy coverages and excludes projected IBNR claims. 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)
	2014*		2015*		2016*		2017*		2018
2014	$	14,680	$	14,572	$	14,559	$	14,589	$	14,651		$                148		7,976
2015				16,887		16,875		16,993		17,039		319		8,926
2016						19,106		19,390		19,364		823		9,633
2017								22,675		22,257		2,208		10,816
2018										24,120		4,659		10,968
		Incurred losses and ALAE							$	97,431
Accident    Year	Cumulative Paid Losses and ALAE through December 31,
	2014*		2015*		2016*		2017*		2018
2014	$	9,199	$	12,036	$	13,140	$	13,850	$	14,273
2015				10,606		13,858		15,285		16,186
2016						12,020		15,862		17,493
2017								13,878		18,249
2018										14,498
		Paid losses and ALAE								80,699
Net unpaid losses and ALAE for 2014 – 2018 accident years										16,732
Net unpaid losses and ALAE for accident years before 2014										586
Net unpaid losses and ALAE									$	17,318

* Unaudited supplemental information

BHRG

We use a variety of actuarial methodologies to establish BHRG’s property and casualty claims liabilities. We use certain methodologies, such as paid and incurred loss development techniques, incurred and paid loss Bornhuetter-Ferguson techniques and frequency and severity techniques, as well as ground-up techniques when appropriate.

Our claims liabilities are principally a function of reported losses from ceding companies, case development and IBNR liability estimates. Case loss estimates are reported under our contracts either individually or in bulk as provided under the terms of the contracts. We may independently evaluate case losses reported by the ceding company, and if deemed appropriate, we may establish case liabilities based on our estimates. Estimated IBNR liabilities are driven by expected case loss emergence patterns and expected loss ratios, which may be evaluated as groups or portfolios of contracts with similar exposures, or on an individual contract-by-contract basis. Case and IBNR liability estimates for major catastrophe events may be based on a per-contract assessment of the ultimate cost associated with the individual loss event. Claim count data is not provided, as such information is not provided consistently by ceding companies under our contracts or is otherwise considered unreliable.

Incurred and paid losses and ALAE of BHRG are disaggregated based on losses that are expected to have shorter claim-tails (property) and losses expected to have longer claim-tails (casualty). Under certain contracts, the coverage can apply to multiple lines of business written by the ceding company, whether property, casualty or combined, and the ceding company may not report loss data by such lines consistently, if at all. In those instances, we allocated losses to property and casualty coverages based on internal estimates. BHRG’s disaggregated incurred and paid losses and ALAE are summarized by accident year, net of reinsurance. IBNR and case development liabilities are as of December 31, 2018. Dollars are in millions.

BHRG Property

Accident   Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	2,366	$	2,037	$	2,232	$	2,154	$	2,058	$	2,031	$	1,990	$	1,985		$1,984	$	1,984		$                7
2010				2,523		2,380		2,408		2,274		2,180		2,145		2,126		2,106		2,114		23
2011						4,300		4,084		3,810		3,720		3,719		3,689		3,666		3,652		52
2012								3,144		2,833		2,629		2,389		2,336		2,333		2,315		65
2013										3,196		3,039		2,695		2,604		2,584		2,524		105
2014												2,621		2,427		2,315		2,171		2,115		120
2015														3,244		3,088		2,531		2,938		136
2016																3,267		3,906		3,625		583
2017																		5,248		4,958		600
2018																				4,373		2,125
Incurred losses and ALAE																			$	30,598
Accident   Year	Cumulative Paid Losses and ALAE through December 31,
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	402	$	1,110	$	1,613	$	1,777	$	1,846	$	1,916	$	1,950	$	1,959	$	1,961	$	1,963
2010				336		1,024		1,506		1,772		1,931		1,987		2,033		2,058		2,065
2011						701		2,282		2,931		3,200		3,310		3,398		3,440		3,485
2012								266		1,222		1,801		1,939		2,028		2,103		2,123
2013										516		1,427		1,866		2,063		2,184		2,264
2014												465		1,244		1,569		1,708		1,773
2015														569		1,590		1,940		2,135
2016																703		1,792		2,187
2017																		1,026		2,713
2018																				910
Paid losses and ALAE																				21,618
Net unpaid losses and ALAE for 2009 – 2018 accident years																				8,980
Net unpaid losses and ALAE for accident years before 2009																				415
Net unpaid losses and ALAE																			$	9,395

* Unaudited supplemental information

BHRG Casualty

Accident    Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	2,375		$2,687	$	2,546	$	2,476	$	2,414	$	2,339	$	2,292	$	2,231		$2,192		$    2,209	$	213
2010				2,301		2,387		2,322		2,258		2,139		2,090		2,044		1,883		1,963		228
2011						2,609		2,696		2,567		2,508		2,418		2,327		2,320		2,282		363
2012								2,789		2,964		2,799		2,864		2,793		2,682		2,615		514
2013										2,130		2,259		2,290		2,134		2,082		2,028		544
2014												1,867		2,061		2,029		1,991		1,905		611
2015														1,875		2,072		2,099		2,000		647
2016																1,903		2,107		2,014		818
2017																		2,189		2,676		1,141
2018																				2,917		1,856
Incurred losses and ALAE																				$  22,609
Accident    Year	Cumulative Paid Losses and ALAE through December 31,
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009		$    247	$	852	$	940	$	1,211	$	1,430	$	1,586	$	1,622	$	1,658		$1,684		$    1,716
2010				118		546		838		1,026		1,278		1,374		1,437		1,482		1,531
2011						292		817		1,160		1,400		1,489		1,581		1,659		1,698
2012								309		749		1,140		1,370		1,527		1,651		1,750
2013										291		521		807		935		1,039		1,140
2014												150		478		644		753		875
2015														196		491		714		834
2016																253		556		734
2017																		231		568
2018																				267
Paid losses and ALAE																				11,113
				Net unpaid losses and ALAE for 2009 – 2018 accident years																11,496
				Net unpaid losses and ALAE for accident years before 2009																8,470
				Net unpaid losses and ALAE																$  19,966

* Unaudited supplemental information

BH Primary

BH Primary’s liabilities for unpaid losses and loss adjustment expenses primarily derive from medical professional liability and workers’ compensation and other casualty insurance, including commercial auto and general liability insurance. Incurred and paid losses and ALAE are summarized by accident year in the following tables, disaggregated by medical professional liability and workers’ compensation and other casualty coverages. IBNR and case development liabilities are as of December 31, 2018. The cumulative number of reported claims reflects the number of individual claimants, and includes claims that ultimately result in no liability or payment. Dollars are in millions.

BH Primary Medical Professional Liability

We estimate the ultimate expected incurred losses and loss adjustment expenses for medical professional claim liabilities using commonly accepted actuarial methodologies such as the paid and incurred development method, Bornhuetter-Ferguson based methods, hindsight outstanding severity method, trended severity method and trended pure premium method. Using a combination of these methodologies produces a range of loss estimates from which 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. As previously noted, MLMIC was acquired on October 1, 2018. MLMIC’s incurred and paid losses and ALAE are included for all years presented retrospectively.

Accident Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	1,423	$	1,349	$	1,294	$	1,251	$	1,153	$	1,060	$	988	$	941	$	922	$	904		$     22		13
2010				1,399		1,346		1,348		1,329		1,234		1,140		1,085		1,031		1,006		43		13
2011						1,346		1,334		1,321		1,262		1,173		1,115		1,050		1,004		71		13
2012								1,336		1,306		1,277		1,223		1,168		1,078		1,035		108		13
2013										1,328		1,296		1,261		1,195		1,127		1,086		160		12
2014												1,370		1,375		1,305		1,246		1,218		296		13
2015														1,374		1,342		1,269		1,290		450		14
2016																1,392		1,416		1,414		641		14
2017																		1,466		1,499		1,011		18
2018																				1,602		1,410		15
						Incurred losses and ALAE													$	12,058
Accident Year	Cumulative Paid Losses and ALAE through December 31,
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	5	$	90	$	203	$	350	$	480	$	619	$	699	$	753	$	789	$	810
2010				15		95		224		377		526		654		745		810		853
2011						16		82		200		356		517		632		711		767
2012								15		93		218		377		522		642		725
2013										15		90		219		368		518		635
2014												21		106		238		396		540
2015														23		108		218		382
2016																22		115		274
2017																		27		128
2018																				35
						Paid losses and ALAE														5,149
				Net unpaid losses and ALAE for 2009 – 2018 accident years																6,909
				Net unpaid losses and ALAE for accident years before 2009																379
				Net unpaid losses and ALAE															$	7,288

* Unaudited supplemental information

BH Primary Workers’ Compensation and Other Casualty

We periodically evaluate ultimate loss and loss adjustment expense estimates for the workers’ compensation and other casualty claims 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 and analyzed by state due to the different state regulatory frameworks that may impact certain factors including the duration and amount of loss payments. We also separately study the various components of liabilities, such employee lost wages, medical expenses and the costs of claims investigations and administration. 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.

Accident Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	732	$	673	$	676	$	632	$	609	$	595	$	589	$	585	$	576	$	562	$	40		46
2010				715		675		644		609		589		584		576		562		553		42		47
2011						786		706		709		657		653		647		632		622		72		51
2012								907		887		876		828		815		792		779		105		63
2013										1,339		1,310		1,257		1,210		1,173		1,148		188		83
2014												1,866		1,737		1,716		1,641		1,572		287		112
2015														2,314		2,244		2,156		2,124		445		133
2016																2,656		2,561		2,475		833		127
2017																		3,262		3,122		1,395		143
2018																				3,761		2,459		142
						Incurred losses and ALAE													$	16,718
Accident Year	Cumulative Paid Losses and ALAE through December 31,
	2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017*		2018
2009	$	99	$	228	$	328	$	389	$	434	$	464	$	488	$	499	$	503	$	507
2010				106		250		327		393		437		465		479		484		491
2011						114		222		344		415		470		498		512		522
2012								101		301		422		515		576		607		627
2013										193		452		650		776		842		887
2014												247		581		837		1,046		1,155
2015														297		715		1,044		1,328
2016																332		792		1,181
2017																		467		1,078
2018																				570
						Paid losses and ALAE														8,346
				Net unpaid losses and ALAE for 2009 – 2018 accident years																8,372
				Net unpaid losses and ALAE for accident years before 2009																322
				Net unpaid losses and ALAE															$	8,694

* 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 Year	1		2		3		4		5		6		7		8		9		10
GEICO		61.7%		19.6%		8.1%		4.9%		2.8%
BHRG Property		19.0%		36.1%		18.3%		7.9%		4.3%		3.0%		1.5%		1.0%		0.2%		0.1%
BHRG Casualty		10.4%		17.8%		11.5%		8.5%		7.4%		5.1%		3.0%		1.9%		1.8%		1.4%
BH Primary Medical Professional Liability		1.6%		7.3%		11.5%		14.5%		14.1%		12.4%		8.4%		6.0%		4.1%		2.3%
BH Primary Workers’ Compensation and Other Casualty		15.8%		21.5%		16.5%		12.0%		7.6%		4.6%		2.9%		1.5%		1.0%		0.7%