Berkshire Hathaway 10-Q 2022-06-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2022

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 July 26, 2022:

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)

GEICO (Continued)

GEICO’s pre-tax underwriting loss in the first half of 2022 reflected increased claims severities, primarily due to significant cost inflation in automobile markets, which began to accelerate in the second half of 2021. Increases in used car prices are producing increased claims severities on total losses and shortages of car parts are contributing to increased claims severities on partial losses. In addition, injury claims severities continue to trend higher than general inflation rates.

Premiums written increased $186 million (2.0%) in the second quarter and $445 million (2.3%) in the first six months of 2022 compared to 2021. The increases were primarily attributable to increases in average premiums per auto policy due to rate increases, partially offset by a decrease in policies in-force. Premiums earned increased $261 million (2.7%) in the second quarter and $892 million (4.8%) in the first six months of 2022 compared to 2021. Premiums earned in the first six months of 2021 included a reduction of approximately $460 million attributable to the remaining impact of the GEICO Giveback program that provided a 15% premium credit to new and renewing voluntary auto and motorcycle policies written between April 8, 2020 and October 7, 2020.

Losses and loss adjustment expenses increased $1.5 billion (19.5%) in the second quarter and $3.6 billion (25.3%) in the first six months of 2022 compared to 2021. GEICO’s ratio of losses and loss adjustment expenses to premiums earned was 92.8% in the second quarter and 91.2% in the first six months of 2022, increases of 13.0 percentage points and 15.0 percentage points, respectively, compared to the same periods in 2021, which reflected increases in claims frequencies and severities for the current year and lower reductions of loss estimates for prior years’ loss events.

Claims frequencies in the first six months of 2022 were higher for all coverages, including property damage (four to five percent range), collision (ten to eleven percent range), bodily injury (six to seven percent range) and personal injury (seven to eight percent range). Average claims severities in the first six months of 2022 were higher for property damage coverage (eleven to twelve percent range), collision coverage (nineteen to twenty percent range) and bodily injury coverage (nine to eleven percent range). Losses and loss adjustment expenses reflected reductions in the ultimate loss estimates for prior years’ loss events of $207 million in the first six months of 2022 compared to $846 million in the first six months of 2021. The reductions in 2022 reflected decreases for bodily and personal injury coverages, partially offset by increases for collision and property damage coverages, while the reductions in 2021 were across all major coverages.

Underwriting expenses decreased $114 million (8.7%) in the second quarter and $363 million (13.2%) in the first six months of 2022 compared to 2021, reflecting lower advertising costs in both periods and lower employee-related costs in the first six months. GEICO’s expense ratio (underwriting expense to premiums earned) was 12.2% in the second quarter and first six months of 2022, decreases of 1.4 percentage points and 2.7 percentage points, respectively, compared to the same periods in 2021, attributable to both the decreases in expenses as well as the increases in earned premiums.

Berkshire Hathaway Primary Group

The Berkshire Hathaway Primary Group (“BH Primary”) provides a variety of commercial insurance solutions, including healthcare professional liability, workers’ compensation, automobile, general liability, property and specialty coverages for small, medium and large clients. BH Primary’s larger insurers include Berkshire Hathaway Specialty Insurance (“BH Specialty”), Berkshire Hathaway Homestate Companies (“BHHC”), MedPro Group, Berkshire Hathaway GUARD Insurance Companies (“GUARD”), National Indemnity Company (“NICO Primary”) and U.S. Liability Insurance Company (“USLI”). A summary of BH Primary underwriting results follows (dollars in millions).

Premiums written increased $561 million (19.1%) in the second quarter and $1.0 billion (17.9%) in the first six months of 2022 compared to 2021, reflecting year-to-date increases at BH Specialty (26%), USLI (17%) and BHHC (14%). The increases were primarily on property and casualty coverages in the U.S. across several markets.

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

Insurance—Underwriting (Continued)

Berkshire Hathaway Primary Group (Continued)

BH Primary’s loss ratio was 67.7% in the second quarter and 70.2% in the first six months of 2022, a decrease of 3.3 percentage points in the second quarter and relatively unchanged in the first six months compared to 2021. Losses and loss adjustment expenses from significant catastrophe events were $75 million in the first six months of 2022 compared to $156 million in 2021. Losses and loss adjustment expenses also included net reductions in estimated ultimate liabilities for prior years’ loss events of $106 million in the first six months of 2022 compared to $253 million in 2021. BH Primary insurers write significant levels of workers’ compensation, commercial and professional liability insurance and the related claim costs may be subject to high severity and long claim-tails. We could experience significant increases in claims liabilities in the future attributable to higher-than-expected claim settlements, adverse litigation outcomes or judicial rulings and other factors not currently anticipated.

Underwriting expenses increased $194 million (30.6%) in the second quarter and $347 million (28.1%) in the first six months of 2022 compared to the same periods in 2021. The expense ratio increased 2.0 percentage points in the second quarter and 1.8 percentage points in the first six months compared to 2021. These increases reflected costs associated with new business development and changes in business mix.

Berkshire Hathaway Reinsurance Group

The Berkshire Hathaway Reinsurance Group (“BHRG”) offers excess-of-loss and quota-share reinsurance coverages on property and casualty risks to insurers and reinsurers worldwide through several subsidiaries, led by National Indemnity Company (“NICO”), General Reinsurance Corporation and General Reinsurance AG. We also write life and health reinsurance coverages through General Re Life Corpor

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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 June 30, 2022, 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, 2021.

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, 2021, 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 Charlie 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 second quarter of 2022 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.