(13)

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 14), for each of the three years ending December 31, 2017 is as follows (in millions).


	2017			2016			2015
Balances – beginning of year:
Gross liabilities	$	53,379		$	50,519		$	48,208
Reinsurance recoverable on unpaid losses		(3,338	)		(3,307	)		(3,116	)

Net liabilities		50,041			47,212			45,092

Incurred losses and loss adjustment expenses:
Current accident year events		37,702			30,636			27,829
Prior accident years’ events		(544	)		(1,523	)		(2,015	)
Discount accretion		—			80			82

Total incurred losses and loss adjustment expenses		37,158			29,193			25,896

Paid losses and loss adjustment expenses:
Current accident year events		(17,425	)		(14,898	)		(13,070	)
Prior accident years’ events		(12,507	)		(10,929	)		(10,229	)

Total payments		(29,932	)		(25,827	)		(23,299	)

Foreign currency translation adjustment		654			(537	)		(545	)
Business acquisition		—			—			68

Balances – end of year:
Net liabilities		57,921			50,041			47,212
Reinsurance recoverable on unpaid losses		3,201			3,338			3,307

Gross liabilities	$	61,122		$	53,379		$	50,519

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”). We incurred current accident year losses of approximately $3 billion in 2017 with respect to hurricanes Harvey, Irma and Maria, an earthquake in Mexico, a cyclone in Australia and wildfires in California.

Incurred losses and loss adjustment expenses also included net reductions of estimated ultimate liabilities for prior accident years of $544 million, $1.5 billion and $2.0 billion in 2017, 2016 and 2015, respectively. Overall, we decreased estimated ultimate liabilities with respect to primary insurance by $249 million in 2017, $569 million in 2016 and $793 million in 2015. In each year, estimated ultimate claim liabilities for prior accident years were generally lower for medical malpractice and workers’ compensation insurance. For primary private passenger automobile insurance claims, we increased liabilities for prior years’ claims in 2017, primarily due to increased average claims severities, and decreased liabilities for prior years’ claims in 2016 and 2015. We decreased estimated ultimate liabilities with respect to property and casualty reinsurance by $295 million in 2017, $955 million in 2016 and $1.2 billion in 2015. The decrease in 2017 included 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 recoverables, were approximately $1.6 billion at December 31, 2017 and 2016. These liabilities are subject to change due to changes in the legal and regulatory environment as described in Note 14. We are unable to reliably estimate additional losses or a range of losses that are reasonably possible for these claims.

A reconciliation of certain net unpaid losses and allocated loss adjustment expenses (the latter referred to as “ALAE”) of GEICO, Berkshire Hathaway Reinsurance Group (“BHRG”, which includes the NICO Group and General Re Group) and Berkshire Hathaway Primary Group (“BH Primary”) to our consolidated unpaid losses and loss adjustment expenses as of December 31, 2017, along with a discussion regarding each group’s liability estimation processes, follows (in millions).


	GEICO		BHRG Property		BHRG Casualty		BH Primary		Total
Unpaid losses and ALAE, net	$	15,655	$	8,838	$	19,219	$	11,867	$	55,579
Reinsurance recoverable		859		289		1,028		1,025		3,201
Unpaid unallocated loss adjustment expenses										2,342

Unpaid losses and loss adjustment expenses									$	61,122

GEICO

GEICO’s claim liabilities predominantly relate to various types of private passenger auto liability and physical damage claims. 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. 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 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 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, 2017. 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)
Accident Year	2013*		2014*		2015*		2016*		2017		IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
2013	$	13,085	$	12,900	$	12,943	$	12,920	$	12,961		$ 105		7,105
2014				14,680		14,572		14,559		14,589		236		7,972
2015						16,887		16,875		16,993		682		8,915
2016								19,106		19,390		1,806		9,601
2017										22,675		4,343		10,513

		Incurred losses and ALAE							$	86,608

Accident Year	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2013*		2014*		2015*		2016*		2017
2013	$	8,006	$	10,573	$	11,650	$	12,256	$	12,618
2014				9,199		12,036		13,140		13,850
2015						10,606		13,858		15,285
2016								12,020		15,862
2017										13,878

		Paid losses and ALAE								71,493

Net unpaid losses and ALAE for 2013 – 2017 accident years										15,115
Net unpaid losses and ALAE for accident years before 2013										540

Net unpaid losses and ALAE									$	15,655

* 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.

We disaggregated net losses and ALAE for BHRG based on losses that are expected to have shorter claim-tails (property) and those 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. In the following tables, BHRG’s incurred and paid loss and ALAE data is separately presented for property and casualty coverage by accident year, net of reinsurance. IBNR and case development liabilities are as of December 31, 2017. Dollars are in millions.

BHRG Property


Accident Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities
Accident Year	2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017		IBNR and Case Development Liabilities
2008	$	3,030	$	2,720	$	2,773	$	2,483	$	2,392	$	2,432	$	2,386	$	2,353		$2,344		$2,336		$ 6
2009				2,385		2,057		2,250		2,171		2,075		2,048		2,006		2,001		2,000		8
2010						2,545		2,538		2,424		2,289		2,200		2,164		2,146		2,126		32
2011								4,192		4,127		3,850		3,764		3,761		3,729		3,706		84
2012										3,153		2,851		2,645		2,404		2,351		2,347		95
2013												3,230		3,074		2,727		2,636		2,614		172
2014														2,646		2,458		2,344		2,199		223
2015																3,268		3,115		2,557		232
2016																		3,294		3,938		1,072
2017																				5,276		1,993

Incurred losses and ALAE																			$	29,099


Accident Year	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017
2008		$ 481	$	1,449	$	1,825	$	2,055	$	2,159	$	2,205	$	2,240	$	2,296	$	2,307	$	2,308
2009				405		1,122		1,627		1,792		1,861		1,931		1,965		1,975		1,977
2010						339		1,081		1,520		1,789		1,950		2,007		2,054		2,079
2011								661		2,308		2,963		3,233		3,344		3,433		3,475
2012										265		1,232		1,813		1,952		2,041		2,116
2013												522		1,447		1,892		2,090		2,211
2014														467		1,259		1,591		1,731
2015																571		1,604		1,959
2016																		706		1,807
2017																				1,028

Paid losses and ALAE																				20,691

Net unpaid losses and ALAE for 2008 – 2017 accident years																				8,408
Net unpaid losses and ALAE for accident years before 2008																				430

Net unpaid losses and ALAE																			$	8,838

*	Unaudited supplemental information

BHRG Casualty


Accident Year	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities
Accident Year	2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017		IBNR and Case Development Liabilities
2008	$	2,448	$	2,602	$	2,279	$	2,358	$	2,309	$	2,161	$	2,101	$	2,042	$	2,009	$	2,010	$	226
2009				2,393		2,711		2,571		2,500		2,437		2,362		2,315		2,252		2,213		225
2010						2,320		2,413		2,345		2,282		2,162		2,111		2,066		1,903		166
2011								2,628		2,720		2,589		2,529		2,440		2,348		2,340		419
2012										2,811		2,995		2,829		2,892		2,819		2,705		663
2013												2,152		2,290		2,320		2,162		2,107		644
2014														1,891		2,090		2,059		2,021		736
2015																1,895		2,102		2,130		803
2016																		1,923		2,132		1,012
2017																				2,209		1,428

Incurred losses and ALAE																			$	21,770

Accident Year	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017
2008		$ 253		$664		$959		$ 1,067		$ 1,168		$ 1,250		$ 1,325		$ 1,367		$ 1,405	$	1,442
2009				249		858		947		1,219		1,439		1,596		1,632		1,669		1,695
2010						120		553		846		1,035		1,288		1,384		1,448		1,493
2011								293		822		1,167		1,409		1,498		1,591		1,670
2012										311		754		1,147		1,378		1,535		1,660
2013												293		527		814		943		1,048
2014														152		485		651		761
2015																198		497		722
2016																		254		561
2017																				232

Paid losses and ALAE																				11,284

				Net unpaid losses and ALAE for 2008 – 2017 accident years																10,486
				Net unpaid losses and ALAE for accident years before 2008																8,733

				Net unpaid losses and ALAE															$	19,219

*	Unaudited supplemental information

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 claims 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, 2017. Dollars are in millions.


	Incurred Losses and ALAE through December 31,																				IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
Accident Year	2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017		IBNR and Case Development Liabilities		Cumulative Number of Reported Claims (in thousands)
2008	$	1,573	$	1,503	$	1,448	$	1,369	$	1,250	$	1,182	$	1,135	$	1,103	$	1,073	$	1,063	$	69		71
2009				1,528		1,435		1,392		1,322		1,229		1,164		1,109		1,073		1,047		75		60
2010						1,516		1,437		1,378		1,321		1,234		1,163		1,119		1,068		107		61
2011								1,563		1,461		1,446		1,359		1,290		1,249		1,189		168		67
2012										1,710		1,675		1,631		1,559		1,518		1,423		250		79
2013												2,199		2,127		2,052		1,977		1,900		424		100
2014														2,906		2,737		2,687		2,580		736		138
2015																3,519		3,406		3,266		1,095		163
2016																		4,149		4,024		1,917		171
2017																				5,024		3,161		166

						Incurred losses and ALAE													$	22,584


	Cumulative Paid Losses and ALAE through December 31,
Accident Year	2008*		2009*		2010*		2011*		2012*		2013*		2014*		2015*		2016*		2017
2008		$181		$369		$535		$676		$771		$852		$903		$932	$	950	$	968
2009				136		335		507		643		752		838		891		921		933
2010						153		366		522		661		768		846		889		916
2011								167		331		533		682		824		903		946
2012										165		444		642		820		956		1,049
2013												279		621		903		1,118		1,272
2014														387		833		1,192		1,504
2015																499		1,060		1,498
2016																		634		1,302
2017																				761

						Paid losses and ALAE														11,149

				Net unpaid losses and ALAE for 2008 – 2017 accident years																11,435
				Net unpaid losses and ALAE for accident years before 2008																432

				Net unpaid losses and ALAE															$	11,867

*	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		61.9%		19.6%		8.1%		4.9%		2.8%
BHRG Property		18.7%		37.5%		18.8%		8.3%		4.5%		2.7%		1.6%		1.4%		0.3%		0.0%
BHRG Casualty		10.7%		18.4%		12.0%		8.3%		7.1%		5.0%		3.0%		2.0%		1.5%		1.8%
BH Primary		14.6%		17.7%		15.0%		12.5%		9.8%		7.3%		4.4%		2.7%		1.4%		1.7%