Berkshire Hathaway 10-Q 2021-09-30

FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

For the quarterly period ended September 30, 2021

OR

For the transition period from to

Commission file number 001-14905

BERKSHIRE HATHAWAY INC.

(Exact name of registrant as specified in its charter)

3555 Farnam Street, Omaha, Nebraska 68131

(Address of principal executive office) (Zip Code)

(402) 346-1400

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

Number of shares of common stock outstanding as of October 27, 2021:

BERKSHIRE HATHAWAY INC.

Part I Financial Information

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

See accompanying Notes to Consolidated Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(dollars in millions)

See accompanying Notes to Consolidated Financial Statements

BERKSHIRE HATHAWAY INC.

and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions except per share amounts)

(Unaudited)

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Insurance—Underwriting (Continued)

Berkshire Hathaway Reinsurance Group (Continued)

Property/casualty

A summary of property/casualty reinsurance underwriting results follows (dollars in millions).

Premiums written increased $155 million (3.9%) in the third quarter and $913 million (8.3%) in the first nine months of 2021 compared to the same periods in 2020. The increases reflected net new business, increased participations on renewals, improved prices and favorable foreign currency translation effects.

Losses and loss adjustment expenses increased $442 million (17.4%) in the third quarter and $448 million (6.2%) in the first nine months of 2021 compared to 2020. The loss ratio increased 7.9 percentage points in the third quarter and decreased 7.7 percentage points in the first nine months of 2021 compared to 2020. Losses and loss adjustment expenses in 2021 included provisions for estimated liabilities arising from significant catastrophe events of approximately $1.5 billion in the third quarter and $1.9 billion in the first nine months. These provisions were attributable to Hurricane Ida and flooding in Europe in the third quarter and Winter Storm Uri in the first quarter. Estimated losses attributable to significant catastrophes in 2020 were approximately $300 million and derived from Hurricanes Laura and Sally in the third quarter.

Losses incurred in the first nine months of 2021 also included $564 million from a net decrease in estimated ultimate liabilities for prior years’ loss events. Losses and loss adjustment expenses in 2020 included a year-to-date net increase in estimated ultimate liabilities for prior years’ loss events of $342 million and losses attributable to the COVID-19 pandemic of $113 million in the third quarter and $688 million in the first nine months.

Underwriting expenses are primarily commissions and brokerage costs. The expense ratio in 2021 increased 1.8 percentage points in the third quarter and decreased 1.5 percentage points in the first nine months compared to the same periods in 2020, attributable to changes in business mix.

Life/health

A summary of our life/health reinsurance underwriting results follows (dollars in millions).

Life/health premiums written decreased 3.7% in the third quarter and 5.4% in the first nine months of 2021 compared to 2020. Premiums written in 2020 included $131 million in the third quarter and $497 million in the first nine months from a policy that covered U.S. health insurance risks that did not renew in 2021. Otherwise, premiums written in the first nine months of 2021 increased 7.7% versus 2020, primarily due to favorable foreign currency translation effects. Underwriting results in the third quarter and first nine months of 2021 were negatively affected by significant increases in mortality in the U.S., South Africa, India and Latin America due to the pandemic. Underwriting results in 2020 reflected COVID-19-related claim estimates of $68 million in the third quarter and $172 million in the first nine months, as well as from increased liabilities from changes in underlying assumptions in estimating disability benefit liabilities in Australia.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Insurance—Underwriting (Continued)

Berkshire Hathaway Reinsurance Group (Continued)

Retroactive reinsurance

Pre-tax underwriting losses in each period derived from the amortization of deferred charges and changes in the estimated timing and amounts of future claim payments. Underwriting results also include foreign currency exchange gains and losses from the effects of changes in foreign currency exchange rates on non-U.S. Dollar denominated liabilities of our U.S. subsidiaries. Before foreign currency exchange effects, pre-tax underwriting losses were $227 million in the third quarter and $690 million in the first nine months of 2021 compared to $282 million in the third quarter and $874 million in the first nine months of 2020. Foreign currency exchange gains were $69 million in the third quarter and $70 million in the first nine months of 2021 compared to losses of $112 million in the third quarter and $22 million in the first nine months of 2020.

Gross unpaid losses assumed under retroactive reinsurance contracts were $39.7 billion at September 30, 2021, declining $1.2 billion since December 31, 2020, primarily due to loss payments. Unamortized deferred charges related to such reinsurance contracts were $11.7 billion at September 30, 2021, a decline of $709 million since December 31, 2020, primarily attributable to amortization. Deferred charge amortization will be charged to earnings over the expected remaining claims settlement periods.

Periodic payment annuity

Periodic payment annuity premiums earned increased $123 million (180.9%) in the third quarter and $49 million (12.0%) in the first nine months of 2021 compared to 2020. Periodic payment annuity business is both price and demand sensitive. Our prem

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Reference is made to Berkshire’s most recently issued Annual Report and in particular the “Market Risk Disclosures” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of September 30, 2021, there were no material changes in the market risks described in Berkshire’s Annual Report on Form 10-K for the year ended December 31, 2020.

As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chairman (Chief Executive Officer) and the Senior Vice President (Chief Financial Officer) concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings. During the quarter, there have been no significant changes in the Company’s internal control over financial reporting or in other factors that could significantly affect internal control over financial reporting.

Part II Other Information

Item 1. Legal Proceedings

Berkshire and its subsidiaries are parties in a variety of legal actions that routinely arise out of the normal course of business, including legal actions seeking to establish liability directly through insurance contracts or indirectly through reinsurance contracts issued by Berkshire subsidiaries. Plaintiffs occasionally seek punitive or exemplary damages. We do not believe that such normal and routine litigation will have a material effect on our consolidated financial condition or results of operations. Berkshire and certain of its subsidiaries are also involved in other kinds of legal actions, some of which assert or may assert claims or seek to impose fines and penalties. We believe that any liability that may arise as a result of other pending legal actions will not have a material effect on our consolidated financial condition or results of operations.

Our significant business risks are described in Item 1A to Form 10-K for the year ended December 31, 2020, to which reference is made herein. The risks and uncertainties we describe are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business or operations. Any adverse effect on our business, financial condition or operating results could result in a decline in the value of our securities and the loss of all or part of your investment.

Item 2. Unregistered Sales of Equity Securities and Use o****f Proceeds and Issuer Repurchases of Equity Securities

Berkshire’s common stock repurchase program permits Berkshire to repurchase its Class A and Class B shares any time that Warren Buffett, Berkshire’s Chairman of the Board and Chief Executive Officer, and Charles Munger, Vice Chairman of the Board, believe that the repurchase price is below Berkshire’s intrinsic value, conservatively determined. Repurchases may be in the open market or through privately negotiated transactions. Information with respect to Berkshire’s Class A and Class B common stock repurchased during the third quarter of 2021 follows.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Information regarding the Company’s mine safety violations and other legal matters disclosed in accordance with Section 1503(a) of the Dodd-Frank Reform Act is included in Exhibit 95 to this Form 10-Q.

None

SIGNATURE

Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.