Note 19. Fair value measurements

Our financial assets and liabilities are summarized below as of March 31, 2019 and December 31, 2018, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, receivables 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, 2019
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies	$	3,918	$	3,918	$	2,846	$	1,072	$	—
States, municipalities and political subdivisions		151		151		—		151		—
Foreign governments		8,091		8,091		5,840		2,251		—
Corporate bonds		6,724		6,724		—		6,720		4
Mortgage-backed securities		531		531		—		531		—
Investments in equity securities		191,771		191,771		191,420		50		301
Investment in Kraft Heinz common stock		13,686		10,626		10,626		—		—
Loans and finance receivables		16,432		16,459		—		1,641		14,818
Derivative contract assets ⁽¹⁾		171		171		—		52		119
Derivative contract liabilities:
Railroad, utilities and energy ⁽¹⁾		99		99		1		83		15
Equity index put options		1,682		1,682		—		—		1,682
Notes payable and other borrowings:
Insurance and other		33,847		35,242		—		35,216		26
Railroad, utilities and energy		63,346		69,937		—		69,937		—

December 31, 2018
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and agencies	$	4,223	$	4,223	$	2,933	$	1,290	$	—
States, municipalities and political subdivisions		189		189		—		189		—
Foreign governments		7,502		7,502		5,417		2,085		—
Corporate bonds		7,440		7,440		—		7,434		6
Mortgage-backed securities		544		544		—		544		—
Investments in equity securities		172,757		172,757		172,253		203		301
Investment in Kraft Heinz common stock		13,813		14,007		14,007		—		—
Loans and finance receivables		16,280		16,377		—		1,531		14,846
Derivative contract assets ⁽¹⁾		172		172		2		52		118
Derivative contract liabilities:
Railroad, utilities and energy ⁽¹⁾		111		111		1		101		9
Equity index put options		2,452		2,452		—		—		2,452
Notes payable and other borrowings:
Insurance and other		34,975		35,361		—		35,335		26
Railroad, utilities and energy		62,515		66,422		—		66,422		—

⁽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. 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 significant 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 ended March 31, 2019 and 2018 follow (in millions).


	Net derivative contract liabilities
Three months ending March 31, 2019
Balance at December 31, 2018	$	(2,343	)
Gains (losses) included in:
Earnings		820
Other comprehensive income		—
Regulatory assets and liabilities		(11	)
Acquisitions, dispositions and settlements		(44	)
Transfers into/out of Level 3		—

Balance at March 31, 2019	$	(1,578	)

Three months ending March 31, 2018
Balance at December 31, 2017	$	(2,069	)
Gains (losses) included in:
Earnings		(176	)
Other comprehensive income		(1	)
Regulatory assets and liabilities		(9	)
Acquisitions, dispositions and settlements		(26	)

Balance at March 31, 2018	$	(2,281	)

Gains and losses included in earnings are reported as components of derivative gains/losses and other revenues, as appropriate.

Quantitative information as of March 31, 2019, 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

Derivative contract liabilities – Equity index put options

1,682

Option pricing model

Volatility

Our equity index put option 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 certain of the contracts have relatively long durations. For these and other reasons, we classified these contracts as Level 3 measurements. 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. 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. Increases or decreases in the volatility inputs will produce increases or decreases in the fair values of the liabilities.