(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%