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Insurance Liabilities | 6 Months Ended
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Jun. 30, 2024
Insurance [Abstract] |
Insurance Liabilities | 12. Insurance Liabilities LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES (LOSS RESERVES) Loss reserves represent the accumulation of estimates of unpaid claims, including estimates for claims incurred but not reported and loss adjustment expenses, less applicable discount. We regularly review and update the methods used to determine loss reserve estimates. Any adjustments resulting from this review are reflected currently in pre-tax income, except to the extent such adjustment impacts a deferred gain under a retroactive reinsurance agreement, in which case the ceded portion would be amortized into pre-tax income in subsequent periods. Because these estimates are subject to the outcome of future events, changes in estimates are common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed. Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are referred to as favorable development or reserve releases. Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from policyholders of approximately $12.3 billion and $12.1 billion at June 30, 2024 and December 31, 2023, respectively. These recoverable amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through self-insured retentions, deductibles, retrospective programs, or captive arrangements, each referred to generically as “deductibles”), primarily for U.S. Commercial casualty business. With respect to the deductible portion of the claim, we manage and pay the entire claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. Thus, these recoverable amounts represent a credit exposure to us. At June 30, 2024 and December 31, 2023 we held collateral of approximately $8.7 billion and $8.7 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of credit and funded trust agreements. Allowance for credit losses for the unsecured portion of these recoverable amounts was $14 million at both June 30, 2024 and December 31, 2023. The following table presents the rollforward of activity in loss reserves:
| Three Months Ended June 30, |  | Six Months Ended June 30, |  |
(in millions) |  | 2024 |  | 2023 |  |  | 2024 |  | 2023 |  |
Liability for unpaid loss and loss adjustment expenses, beginning of period | $ | 70,060 |  | $ | 75,793 |  |  | $ | 70,393 |  | $ | 75,167 |  |  |
Reinsurance recoverable |  | (30,169) |  |  | (32,366) |  |  |  | (30,289) |  |  | (32,102) |  |  |
Net Liability for unpaid loss and loss adjustment expenses, beginning of period |  | 39,891 |  |  | 43,427 |  |  |  | 40,104 |  |  | 43,065 |  |  |
Losses and loss adjustment expenses incurred: |  |  |  |  |  |  |  |  |  |  |
Current year |  | 3,546 |  |  | 3,945 |  |  |  | 6,911 |  |  | 7,729 |  |  |
Prior years, excluding discount and amortization of deferred gain |  | (108) |  |  | (107) |  |  |  | (108) |  |  | (134) |  |  |
Prior years, discount charge (benefit) |  | 62 |  |  | 54 |  |  |  | 168 |  |  | 148 |  |  |
Prior years, amortization of deferred gain on retroactive reinsurance(a) |  | (33) |  |  | (25) |  |  |  | (65) |  |  | (85) |  |  |
Total losses and loss adjustment expenses incurred |  | 3,467 |  |  | 3,867 |  |  |  | 6,906 |  |  | 7,658 |  |  |
Losses and loss adjustment expenses paid: |  |  |  |  |  |  |  |  |  |  |
Current year |  | (855) |  |  | (881) |  |  |  | (1,141) |  |  | (1,170) |  |  |
Prior years |  | (2,597) |  |  | (2,994) |  |  |  | (5,454) |  |  | (6,543) |  |  |
Total losses and loss adjustment expenses paid |  | (3,452) |  |  | (3,875) |  |  |  | (6,595) |  |  | (7,713) |  |  |
Other changes: |  |  |  |  |  |  |  |  |  |  |
Foreign exchange effect |  | (158) |  |  | (25) |  |  |  | (654) |  |  | 372 |  |  |
Retroactive reinsurance adjustment (net of discount)(b) |  | 186 |  |  | 47 |  |  |  | 178 |  |  | 59 |  |  |
Reclassified to held for sale, net of reinsurance recoverables(c) |  | — |  |  | (3,383) |  |  |  | (5) |  |  | (3,383) |  |  |
Total other changes |  | 28 |  |  | (3,361) |  |  |  | (481) |  |  | (2,952) |  |  |
Liability for unpaid loss and loss adjustment expenses, end of period: |  |  |  |  |  |  |  |  |  |  |
Net liability for unpaid losses and loss adjustment expenses |  | 39,934 |  |  | 40,058 |  |  |  | 39,934 |  |  | 40,058 |  |  |
Reinsurance recoverable(d) |  | 29,849 |  |  | 30,226 |  |  |  | 29,849 |  |  | 30,226 |  |  |
Total | $ | 69,783 |  | $ | 70,284 |  |  | $ | 69,783 |  | $ | 70,284 |  |  |
(a)Includes $39 million and $6 million for the retroactive reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. (Berkshire), covering U.S. asbestos exposures for the three months ended June 30, 2024 and 2023, respectively, and $44 million and $13 million for the six months ended June 30, 2024 and 2023, respectively. (b)Includes benefit (charge) from change in discount on retroactive reinsurance in the amount of $23 million and $26 million for the three months ended June 30, 2024 and 2023 respectively, and $78 million and $96 million for the six months ended June 30, 2024 and 2023, respectively. (c)Represents change in loss reserves included in Liabilities held for sale for the six months ended June 30, 2024. For additional information, see Note 4. (d)Excludes $1.5 billion of Reinsurance recoverable reclassified to Assets held for sale on the Condensed Consolidated Balance Sheets at June 30, 2023. On January 20, 2017, we entered into an adverse development reinsurance agreement with NICO, under which we transferred to NICO 80 percent of the reserve risk on substantially all of our U.S. commercial long-tail exposures for accident years 2015 and prior. Under this agreement, we ceded to NICO 80 percent of the paid losses on subject business paid on or after January 1, 2016 in excess of $25 billion of net paid losses, up to an aggregate limit of $25 billion. At NICO’s 80 percent share, NICO’s limit of liability under the contract is $20 billion. We account for this transaction as retroactive reinsurance. We paid total consideration, including interest, of $10.2 billion. The consideration was placed into a collateral trust account as security for NICO’s claim payment obligations, and Berkshire has provided a parental guarantee to secure the obligations of NICO under the agreement. Prior Year Development During the three and six months ended June 30, 2024, we recognized favorable prior year loss reserve development of $108 million excluding discount and amortization of deferred gain. The development in this period was largely driven by favorable development on our loss sensitive U.S. Workers' Compensation business along with favorable development in U.S. Other Casualty, offset by adverse development in U.S. Excess Casualty. During the three months ended June 30, 2023, we recognized favorable prior year loss reserve development of $107 million excluding discount and amortization of deferred gain. The development in this period was largely driven by favorable development on our loss sensitive U.S. Workers' Compensation business, U.S. Other Casualty and U.S. Property & Special Risks including prior year catastrophes, partially offset by unfavorable development on European Casualty. During the six months ended June 30, 2023, we recognized favorable prior year loss reserve development of $134 million excluding discount and amortization of deferred gain. The development in this period was largely driven by favorable development on our loss sensitive U.S. Workers' Compensation business, U.S. Other Casualty and U.S. Property & Special Risks, partially offset by unfavorable development on European Casualty. Discounting of Loss Reserves At June 30, 2024 and December 31, 2023, the loss reserves reflect a net loss reserve discount of $1.2 billion and $1.2 billion, respectively, including tabular and non-tabular calculations based upon the following assumptions: •The non-tabular workers’ compensation discount is calculated separately for companies domiciled in New York, Pennsylvania and Delaware, and follows the statutory regulations (prescribed or permitted) for each state. –For New York companies, the discount is based on a 5 percent interest rate and the companies’ own payout patterns. –The Pennsylvania and Delaware regulators approved use of a consistent benchmark discount rate and spread (U.S. Treasury rate plus a liquidity premium) to all of our workers’ compensation reserves in our Pennsylvania domiciled and Delaware domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers compensation portfolios. In 2020, the regulators also approved that the discount rate will be updated on an annual basis. •The tabular workers’ compensation discount is calculated based on the mortality rate used in the 2007 U.S. Life table and interest rates prescribed or permitted by each state (i.e. New York is based on 5 percent interest rate and Pennsylvania and Delaware are based on U.S. Treasury rate plus a liquidity premium). In the case that applying this tabular discount factor to our nominal reserves produces a tabular discount that is greater than the indemnity portion of our case reserves, the tabular discount is capped at our estimate of the indemnity portion of our cases reserves (45 percent). The discount for asbestos reserves has been fully accreted. At June 30, 2024 and December 31, 2023, the discount consists of $288 million and $294 million of tabular discount, respectively, and $921 million and $939 million of non-tabular discount for workers’ compensation, respectively. During the six months ended June 30, 2024 and 2023, the benefit / (charge) from changes in discount of $(102) million and $(80) million, respectively, were recorded as part of Policyholder benefits and losses incurred in the Condensed Consolidated Statements of Income (Loss). The following table presents the components of the loss reserve discount discussed above:
(in millions) |  | June 30, 2024 |  | December 31, 2023
U.S. workers' compensation | $ | 2,235 |  | $ | 2,337 |
Retroactive reinsurance |  | (1,026) |  |  | (1,104) |
Total reserve discount(a)(b) | $ | 1,209 |  | $ | 1,233 |
(a)Excludes $196 million and $196 million of discount related to certain long-tail liabilities in the UK at June 30, 2024 and December 31, 2023, respectively. (b)Includes gross discount of $673 million and $687 million, which was 100 percent ceded to Fortitude Re at June 30, 2024 and December 31, 2023, respectively. The following table presents the net loss reserve discount benefit (charge):
| Three Months Ended June 30, |  | Six Months Ended June 30,
(in millions) |  | 2024 |  | 2023 |  |  | 2024 |  | 2023 |  |
Current accident year | $ | 36 |  | $ | 38 |  |  | $ | 66 |  | $ | 68 |  |  |
Accretion and other adjustments to prior year discount |  | (62) |  |  | (54) |  |  |  | (168) |  |  | (148) |  |  |
Net reserve discount benefit (charge) |  | (26) |  |  | (16) |  |  |  | (102) |  |  | (80) |  |  |
Change in discount on loss reserves ceded under retroactive reinsurance |  | 23 |  |  | 26 |  |  |  | 78 |  |  | 96 |  |  |
Net change in total reserve discount* | $ | (3) |  | $ | 10 |  |  | $ | (24) |  | $ | 16 |  |  |
*Excludes $2 million and $4 million discount related to certain long-tail liabilities in the UK for the three months ended June 30, 2024 and 2023, respectively, and excludes $0 million and $8 million discount related to certain long-tail liabilities in the UK for the six months ended June 30, 2024 and 2023, respectively. Amortization of Deferred Gain on Retroactive Reinsurance Amortization of the deferred gain on retroactive reinsurance includes $(6) million and $19 million related to the adverse development reinsurance cover with NICO for the three months ended June 30, 2024 and 2023, respectively, and $21 million and $72 million related to the adverse development reinsurance cover with NICO for the six months ended June 30, 2024 and 2023, respectively. Amounts recognized reflect the amortization of the initial deferred gain at inception, as amended for subsequent changes in the deferred gain due to changes in subject reserves. FUTURE POLICY BENEFITS Future policy benefits primarily include reserves for traditional life and annuity payout contracts, which represent an estimate of the present value of future benefits less the present value of future net premiums. Included in Future policy benefits are liabilities for annuities issued in structured settlement arrangements whereby a claimant receives life contingent payments over their lifetime. Also included are pension risk transfer arrangements whereby an upfront premium is received in exchange for guaranteed retirement benefits. All payments under these arrangements are fixed and determinable with respect to their amounts and dates. Structured settlement or other annuitization elections (e.g., certain single premium immediate annuities) that do not involve life contingent payments, but rather payments for a stated period are included in Policyholder contract deposits. For traditional and limited pay long-duration products, benefit reserves are accrued and benefit expense is recognized using a net premium ratio methodology for each annual cohort of business. The following tables present the balances and changes in the liability for future policy benefits and a reconciliation of the net liability for future policy benefits to the liability for future policy benefits in the Condensed Consolidated Balance Sheets:
Six Months Ended June 30, |  |  |
(in millions, except for liability durations) | 2024 |  | 2023
Present value of expected net premiums |  |  |
Balance, beginning of year | $ | 1,702 |  |  | $ | 1,929 |
Effect of changes in discount rate assumptions (AOCI) | 339 |  |  | 262 |
Beginning balance at original discount rate | 2,041 |  |  | 2,191 |
Effect of actual variances from expected experience | (7) |  |  | (26) |
Adjusted beginning of year balance | 2,034 |  |  | 2,165 |
Issuances | 54 |  |  | 67 |
Interest accrual | 21 |  |  | 21 |
Net premium collected | (208) |  |  | (117) |
Foreign exchange impact | (155) |  |  | (88) |
Ending balance at original discount rate | 1,746 |  |  | 2,048 |
Effect of changes in discount rate assumptions (AOCI) | (246) |  |  | (330) |
Balance, end of period | $ | 1,500 |  |  | $ | 1,718 |
Present value of expected future policy benefits |  |  |
Balance, beginning of year | $ | 2,149 |  |  | $ | 2,380 |
Effect of changes in discount rate assumptions (AOCI) | 441 |  |  | 362 |
Beginning balance at original discount rate | 2,590 |  |  | 2,742 |
Effect of actual variances from expected experience(a) | (8) |  |  | (16) |
Adjusted beginning of year balance | 2,582 |  |  | 2,726 |
Issuances | 56 |  |  | 70 |
Interest accrual | 26 |  |  | 26 |
Benefit payments | (212) |  |  | (122) |
Foreign exchange impact | (203) |  |  | (121) |
Ending balance at original discount rate | 2,249 |  |  | 2,579 |
Effect of changes in discount rate assumptions (AOCI) | (329) |  |  | (423) |
Balance, end of period | $ | 1,920 |  |  | $ | 2,156 |
Net liability for future policy benefits, end of period | $ | 420 |  |  | $ | 438 |
Deferred profit liability | 1 |  |  | 1 |
Other reconciling items(b) | 934 |  |  | 963 |
Future policy benefits for life and accident and health insurance contracts | 1,355 |  |  | 1,402 |
Less: Reinsurance recoverable | (761) |  |  | (754) |
Net liability for future policy benefits after reinsurance recoverable | $ | 594 |  |  | $ | 648 |
Weighted average liability duration of the liability for future policy benefits(c) | 9.0 |  | 9.9
(a)Effect of changes in cash flow assumptions and variances from actual experience are partially offset by changes in the deferred profit liability. (b)Other reconciling items primarily include Accident and Health (short-duration) contracts and $724 million and $713 million at June 30, 2024 and 2023, respectively, of certain long-duration contracts that are 100 percent ceded. (c)The weighted average liability durations are calculated as the modified duration using projected future net liability cash flows that are aggregated at the segment level, utilizing the segment level weighted average interest rates and current discount rate, which can be found in the table below. The following table presents the amount of undiscounted expected future benefit payments and undiscounted and discounted expected gross premiums for future policy benefits for nonparticipating contracts:
Six Months Ended June 30, |  |  |  |  |  |
(in millions) |  | 2024 |  | 2023 |  |
Undiscounted expected future benefits and expense |  | $ | 2,760 |  |  | $ | 3,165 |  |  |
Undiscounted expected future gross premiums |  | 3,791 |  |  | 4,383 |  |  |
Discounted expected future gross premiums (at current discount rate) |  | 2,737 |  |  | 3,109 |  |  |
The following table presents the amount of revenue and interest recognized in the Condensed Consolidated Statements of Income (Loss) for future policy benefits for nonparticipating contracts:
Six Months Ended June 30, |  |  |  |  |  |  |  |  |  |  |  |
(in millions) |  |  |  |  |  |  |  |  | 2024 |  | 2023 |  |  |  |  |
Gross Premiums |  |  |  |  |  |  |  |  | $ | 209 |  |  | $ | 232 |  |  |  |  |  |
Interest Accretion |  |  |  |  |  |  |  |  | $ | 4 |  |  | $ | 4 |  |  |  |  |  |
The following table presents the weighted-average interest rate for future policy benefits for nonparticipating contracts:
Six Months Ended June 30, | 2024 |  | 2023
Weighted-average interest rate, original discount rate | 1.86 | % |  | 1.81 | %
Weighted-average interest rate, current discount rate | 3.56 | % |  | 3.59 | %
The weighted average interest rates are calculated using projected future net liability cash flows that are aggregated to the segment level, and are represented as an annual rate.

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