# BERKSHIRE HATHAWAY INC (BRK-B) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from BERKSHIRE HATHAWAY INC's 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1067983/000095017024019719/brka-20231231.htm Accession: 0000950170-24-019719 Filing date: 2024-02-26 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/BRK-B/ All MD&A years: /company/BRK-B/mda/ Previous year: /company/BRK-B/mda/fy2022/ (FY 2022) Next year: /company/BRK-B/mda/fy2024/ (FY 2024) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Net earnings (loss) attributable to Berkshire Hathaway shareholders for each of the past three years are disaggregated in the table that follows. Amounts are after deducting income taxes and exclude earnings attributable to noncontrolling interests (in millions). [[GREPCENT_TABLE]] [["","2023","","","2022","","","2021"],["Insurance \u2013 underwriting","$","5,428","","","$","(30",")","","$","870"],["Insurance \u2013 investment income","","9,567","","","","6,484","","","","4,807"],["BNSF","","5,087","","","","5,946","","","","5,990"],["Berkshire Hathaway Energy (\u201cBHE\u201d)","","2,331","","","","3,904","","","","3,572"],["Pilot Travel Centers (\u201cPTC\u201d)","","603","","","","\u2014","","","","\u2014"],["Manufacturing, service and retailing","","12,759","","","","12,512","","","","11,120"],["Non-controlled businesses*","","1,750","","","","1,528","","","","804"],["Investment and derivative contract gains (losses)","","58,873","","","","(53,612",")","","","62,340"],["Other","","(175",")","","","509","","","","434"],["Net earnings (loss) attributable to Berkshire Hathaway shareholders","$","96,223","","","$","(22,759",")","","$","89,937"]] [[/GREPCENT_TABLE]] —————— * Includes certain businesses in which Berkshire had between a 20% and 50% ownership interest. Through our subsidiaries, we engage in numerous diverse business activities. We manage our operating businesses on an unusually decentralized basis. There are few centralized or integrated business functions. Our senior corporate management team participates in and is ultimately responsible for significant capital allocation decisions, investment activities and the selection of the Chief Executive to head each of the operating businesses. The business segment data (Note 26 to the accompanying Consolidated Financial Statements) should be read in conjunction with this discussion. To varying degrees, our operating businesses have been impacted by government and private sector actions taken to mitigate the adverse economic effects of the COVID-19 virus and its variants, as well as by the development of global geopolitical conflicts, supply chain disruptions and government actions to slow inflation. We cannot reliably predict the future economic effects of these events on our businesses. Insurance underwriting generated after-tax earnings of $5.4 billion in 2023, losses of $30 million in 2022 and earnings of $870 million in 2021. Earnings in 2023 benefited from relatively low losses from significant catastrophe events during the year and improved underwriting results at GEICO compared to 2022, reflecting the impacts of premium rate increases and lower claims frequencies. Underwriting results in 2022 and 2021 included after-tax losses from significant catastrophe events of approximately $2.4 billion and $2.3 billion, respectively. Underwriting losses in 2022 also reflected accelerating claims costs at GEICO. Earnings from insurance underwriting increased $60 million in 2022 and $142 million in 2021 from amounts previously reported due to the retrospective adoption of ASU 2018-12. After-tax earnings from insurance investment income increased $3.1 billion (47.5%) in 2023 and $1.7 billion in 2022 (34.9%) compared to corresponding prior years. These increases were primarily attributable to higher short-term interest rates, which resulted in significant increases in earnings from our short-term investments. After-tax earnings of BNSF declined 14.4% in 2023 compared to 2022 and were relatively unchanged in 2022 compared to 2021. The decrease in 2023 was primarily attributable to lower overall freight volumes and higher non-fuel operating costs, partially offset by lower fuel costs. Results in 2022 reflected higher revenue per car/unit, substantially offset by lower overall freight volumes and higher fuel and other operating costs compared to 2021. After-tax earnings of our utilities and energy business declined 40.3% in 2023 compared to 2022 and increased 9.3% in 2022 compared to 2021. The earnings decline in 2023 reflected lower earnings from the U.S. regulated utilities, reflecting increased wildfire loss estimates, as well as lower earnings from other energy businesses and real estate brokerage businesses. The increase in 2022 reflected higher earnings from other energy businesses, including tax equity investments and the Northern Powergrid businesses, as well as from the natural gas pipeline businesses, partly offset by lower earnings from the real estate brokerage business. As disclosed in Note 2 to the accompanying Consolidated Financial Statements, we increased our ownership in PTC from 38.6% to 80% on January 31, 2023 and we began consolidating PTC’s results of operations on February 1, 2023. In 2021 and 2022 and through January 31, 2023, earnings from PTC on our 38.6% interest were determined under the equity method and are included in earnings from non-controlled businesses in the preceding table. K-35 Management’s Discussion and Analysis Results of Operations Earnings from our manufacturing, service and retailing businesses increased 2.0% in 2023 compared to 2022 and 12.5% in 2022 compared to 2021. Earnings in 2023 reflected increases at certain industrial products manufacturers and services businesses and the impact of Alleghany’s non-insurance businesses acquired in 2022, partially offset by lower earnings from several of our other manufacturing businesses, and from certain of our service and retailing businesses. Operating results in 2022 were mixed among our various businesses. While customer demand for products and services was relatively good in 2022, we experienced weakening demand in the second half of the year at certain of our businesses, which continued through 2023. Investment and derivative contract gains (losses) in each of the three years predominantly derived from our investments in equity securities and included significant net unrealized gains and losses from market price changes. We believe that investment gains and losses on investments in equity securities, whether realized from dispositions or unrealized from changes in market prices, are generally meaningless in understanding our reported periodic results or evaluating the economic performance of our operating businesses. These gains and losses have caused and will continue to cause significant volatility in our periodic earnings. Investment and derivative contract gains (losses) also included an after-tax non-cash remeasurement gain of approximately $2.4 billion in the first quarter of 2023 related to our previously held 38.6% interest in PTC through the application of the acquisition accounting method. Other earnings included after-tax foreign exchange rate gains of approximately $200 million in 2023, $1.3 billion in 2022 and $1.0 billion in 2021 related to the non-U.S. Dollar denominated debt issued by Berkshire and its U.S.-based finance subsidiary, Berkshire Hathaway Finance Corporation (“BHFC”). Insurance—Underwriting Our management views our insurance businesses as possessing two distinct activities – underwriting and investing. Underwriting decisions are the responsibility of the unit managers, while investing decisions are the responsibility of Berkshire’s Chairman and CEO, Warren E. Buffett and Berkshire’s corporate investment managers. Accordingly, we evaluate performance of underwriting operations without any allocation of investment income or investment gains and losses. We consider investment income as an integral component of our aggregate insurance operating results. However, we consider investment gains and losses, whether realized or unrealized, as non-operating. We believe that such gains and losses are not meaningful in understanding the periodic operating results of our insurance businesses. The timing and magnitude of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to our reinsurance businesses. We currently consider pre-tax incurred losses exceeding $150 million from a current year catastrophic event to be significant. Significant catastrophe events in 2023 were a cyclone and floods in New Zealand and a hailstorm in Italy. In 2022, significant events were Hurricane Ian and floods in Australia, while significant events in 2021 included Hurricane Ida, floods in Europe and Winter Storm Uri. Changes in estimates for unpaid losses and loss adjustment expenses, including amounts established for occurrences in prior years, can also significantly affect our periodic underwriting results. Unpaid loss estimates, including estimates under retroactive reinsurance contracts, were approximately $146 billion as of December 31, 2023 and $143 billion as of December 31, 2022. Our periodic underwriting results may also include foreign currency transaction gains and losses arising from the changes in the valuation of non-U.S. Dollar denominated liabilities of our U.S.-based subsidiaries due to foreign currency exchange rate fluctuations. We provide primary insurance and reinsurance products covering property and casualty risks, as well as life and health risks. Our insurance and reinsurance businesses are GEICO, Berkshire Hathaway Primary Group (“BH Primary”) and Berkshire Hathaway Reinsurance Group (“BHRG”). Berkshire acquired Alleghany Corporation (“Alleghany”) on October 19, 2022. Alleghany conducts property and casualty insurance businesses through RSUI Group Inc. and CapSpecialty, Inc. (“RSUI and CapSpecialty” or “Alleghany Insurance”), and reinsurance businesses through Transatlantic Reinsurance Company and affiliates (“TransRe Group”). Underwriting results of Alleghany Insurance are included in BH Primary and underwriting results of TransRe Group are included in BHRG. We strive to produce pre-tax underwriting earnings (defined as premiums earned less insurance losses/benefits incurred and underwriting expenses) over the long term in all business categories, except in BHRG’s retroactive reinsurance and periodic payment annuity businesses. Time-value-of-money is an important element in establishing prices for retroactive reinsurance and periodic payment annuity policies. We normally receive premiums at the contract inception date, which are then available for investment. Ultimate claim payments can extend for decades and are expected to exceed premiums, producing underwriting losses over the claim settlement periods, primarily through deferred charge asset amortization and liability discount accretion charges. K-36 Management’s Discussion and Analysis Insurance—Underwriting Underwriting results of our insurance businesses are summarized below (dollars in millions). BHRG’s pre-tax underwriting earnings in 2022 and 2021 were revised from amounts previously reported for the retrospective adoption of ASU 2018-12. [[GREPCENT_TABLE]] [["","2023","","","2022","","","2021"],["Pre-tax underwriting earnings (loss):"],["GEICO","$","3,635","","","$","(1,880",")","","$","1,259"],["Berkshire Hathaway Primary Group","","1,374","","","","393","","","","607"],["Berkshire Hathaway Reinsurance Group","","1,904","","","","1,465","","","","(755",")"],["Pre-tax underwriting earnings (loss)","","6,913","","","","(22",")","","","1,111"],["Income taxes and noncontrolling interests","","1,485","","","","8","","","","241"],["Net underwriting earnings (loss)","$","5,428","","","$","(30",")","","$","870"],["Effective income tax rate","","21.5","%","","*","","","","21.7","%"]] [[/GREPCENT_TABLE]] —————— * Not meaningful. GEICO GEICO primarily writes private passenger automobile insurance, offering coverages to insureds in all 50 states and the District of Columbia. GEICO markets its policies mainly by direct response methods where most customers apply for coverage directly to the company via the Internet or over the telephone. GEICO also operates an insurance agency that offers primarily homeowners and renters insurance to its auto policyholders. A summary of GEICO’s underwriting results follows (dollars in millions). [[GREPCENT_TABLE]] [["","2023","","","2022","","","2021"],["","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Premiums written","$","39,837","","","","","","$","39,107","","","","","","$","38,395"],["Premiums earned","$","39,264","","","","100.0","","","$","38,984","","","","100.0","","","$","37,706","","","","100.0"],["Losses and loss adjustment expenses","","31,814","","","","81.0","","","","36,297","","","","93.1","","","","30,999","","","","82.2"],["Underwriting expenses","","3,815","","","","9.7","","","","4,567","","","","11.7","","","","5,448","","","","14.5"],["Total losses and expenses","","35,629","","","","90.7","","","","40,864","","","","104.8","","","","36,447","","","","96.7"],["Pre-tax underwriting earnings (loss)","$","3,635","","","","","","$","(1,880",")","","","","","$","1,259"]] [[/GREPCENT_TABLE]] GEICO’s pre-tax underwriting earnings in 2023 reflected higher average premiums per auto policy, lower claims frequencies, reductions in prior accident years’ claims estimates and a reduction in advertising costs. However, average claims severities continued to rise in 2023 due to higher auto repair parts prices, labor costs and medical inflation. Pre-tax underwriting losses in 2022 reflected higher claims frequencies and significant increases in average claims severities, primarily due to substantial cost inflation, which began to accelerate in the second half of 2021 and continued through 2022. GEICO sought rate increases in numerous states in 2022 and 2023 in response to accelerating claims costs. GEICO also significantly reduced advertising expenditures in 2022 and 2023, which contributed to reductions of policies-in-force. 2023 versus 2022 Premiums written increased $730 million (1.9%) in 2023 compared to 2022, reflecting higher average premiums per auto policy (16.8%) due to rate increases, partially offset by a 9.8% decrease in policies-in-force. Premiums earned increased $280 million (0.7%) in 2023 compared to 2022. Losses and loss adjustment expenses decreased $4.5 billion (12.4%) in 2023 compared to 2022. GEICO’s loss ratio (losses and loss adjustment expenses to premiums earned) was 81.0% in 2023, a decrease of 12.1 percentage points compared to 2022. The decline reflected the impact of higher average premiums per auto policy, lower claims frequencies and increased favorable development of prior accident years’ claims estimates, partially offset by increases in average claims severities. K-37 Management’s Discussion and Analysis Insurance—Underwriting GEICO (Continued) Claims frequencies in 2023 were lower for property damage and collision coverages (seven to eight percent range), while claims frequencies increased for bodily injury coverage (one to two percent range). Average claims severities in 2023 were higher for all coverages, including property damage (fourteen to sixteen percent range), collision (four to six percent range) and bodily injury (five to seven percent range). Losses and loss adjustment expenses included reductions in the ultimate loss estimates for prior accident years’ claims of $1.5 billion in 2023 and $653 million in 2022. The reductions in each year were across several major coverages. In 2022, the reduction was partially offset by an increase in property damage prior years’ claims incurred. Underwriting expenses declined $752 million (16.5%) in 2023 compared to 2022. GEICO’s expense ratio (underwriting expense to premiums earned) was 9.7% in 2023, a decrease of 2.0 percentage points compared to 2022, attributable to reduced advertising expenses and improved operating leverage. The earnings from GEICO’s insurance agency (third-party commissions, net of operating expenses) are included as a reduction of underwriting expenses. 2022 versus 2021 Premiums written increased $712 million (1.9%) in 2022 compared to 2021, reflecting increases in average premiums per auto policy due to rate increases, which were substantially offset by a decrease in policies-in-force. Voluntary auto policies-in-force declined 8.9% in 2022 compared to 2021 while average premiums per auto policy increased 10.5%. Premiums earned increased $1.3 billion (3.4%) in 2022 compared to 2021, partially attributable to a reduction in 2021 from the remaining impact of the GEICO Giveback program, which provided a premium reduction on voluntary auto and motorcycle policies from April 2020 to October 2020. Losses and loss adjustment expenses increased $5.3 billion (17.1%) compared to 2021. GEICO’s loss ratio was 93.1% in 2022, an increase of 10.9 percentage points over 2021. The increase was primarily attributable to higher claims frequencies and significantly higher severities, as well as lower reductions of ultimate loss estimates for prior years’ events. Claims frequencies in 2022 were higher for all coverages, including property damage (one to two percent range), bodily injury and collision (four to five percent range) and personal injury (three to four percent range). Average claims severities in 2022 were higher for all coverages, including property damage (twenty-one to twenty-two percent range), collision (fourteen to sixteen percent range) and bodily injury (nine to eleven percent range). Losses and loss adjustment expenses reflected reductions in the ultimate loss estimates for prior years’ loss events of $653 million in 2022 and $1.8 billion in 2021. Losses and loss adjustment expenses were approximately $400 million from Hurricane Ian in 2022 and $375 million from Hurricane Ida in 2021. Underwriting expenses decreased $881 million (16.2%) in 2022 compared to 2021, primarily due to significant reductions in advertising costs and lower employee-related costs. GEICO’s expense ratio was 11.7% in 2022, a decrease of 2.8 percentage points compared to 2021, attributable to both the decrease in expenses as well as higher premiums earned. Berkshire Hathaway Primary Group The Berkshire Hathaway Primary Group consists of several independently managed businesses that provide a variety of primarily commercial insurance solutions, including healthcare professional liability, workers’ compensation, automobile, general liability, property and specialty coverages for small, medium and large clients. BH Primary’s insurers include Berkshire Hathaway Specialty Insurance (“BHSI”), Berkshire Hathaway Homestate Companies (“BHHC”), MedPro Group, Berkshire Hathaway GUARD Insurance Companies (“GUARD”), National Indemnity Company (“NICO Primary”), Berkshire Hathaway Direct Insurance Company (“BH Direct”) and U.S. Liability Insurance Company (“USLI”). This group also includes RSUI and CapSpecialty beginning October 19, 2022. [[GREPCENT_TABLE]] [["","2023","","","2022","","","2021"],["","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Premiums written","$","18,142","","","","","","$","14,619","","","","","","$","12,595"],["Premiums earned","$","17,129","","","","100.0","","","$","13,746","","","","100.0","","","$","11,575","","","","100.0"],["Losses and loss adjustment expenses","","11,224","","","","65.5","","","","9,889","","","","71.9","","","","8,107","","","","70.0"],["Underwriting expenses","","4,531","","","","26.5","","","","3,464","","","","25.2","","","","2,861","","","","24.8"],["Total losses and expenses","","15,755","","","","92.0","","","","13,353","","","","97.1","","","","10,968","","","","94.8"],["Pre-tax underwriting earnings","$","1,374","","","","","","$","393","","","","","","$","607"]] [[/GREPCENT_TABLE]] K-38 Management’s Discussion and Analysis Insurance—Underwriting Berkshire Hathaway Primary Group (Continued) Premiums written increased $3.5 billion (24.1%) in 2023 compared to 2022. The increase was primarily due to RSUI and CapSpecialty ($2.1 billion), as well as comparative increases from BHSI and BH Direct, and to a lesser extent the other businesses. Premiums written increased $2.0 billion (16.1%) in 2022 compared to 2021, reflecting increases at BHSI (16%), USLI (16%), BHHC (15%) and MedPro Group (10%) across a variety of coverages and in several markets, and from the acquisition of RSUI and CapSpecialty ($435 million). Losses and loss adjustment expenses increased $1.3 billion (13.5%) in 2023 compared to 2022, which increased $1.8 billion (22.0%) versus 2021. The loss ratio decreased 6.4 percentage points in 2023 compared to 2022, reflecting lower incurred losses from current year catastrophes and changes in business mix, including the impact of RSUI and CapSpecialty. Incurred losses from significant catastrophes were $37 million in 2023 and $641 million in 2022. Incurred losses and loss adjustment expenses also reflected net reductions in estimated ultimate liabilities for prior years’ loss events of $537 million in 2023 and $428 million in 2022, primarily due to reductions in ultimate medical professional liability and property losses. In 2021, we incurred losses of $433 million from significant catastrophes and recorded net reductions in estimated ultimate liabilities for prior years’ loss events of $631 million. 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. Ultimate claim liabilities could be greater than anticipated due to a variety of factors, including adverse legal and judicial rulings. Underwriting expenses increased $1.1 billion (30.8%) in 2023 compared to 2022 and $603 million (21.1%) in 2022 compared to 2021. The increases were primarily attributable to the increases in premiums earned and changes in business mix, including the effects of the acquisition of RSUI and CapSpecialty. 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, General Reinsurance AG and, beginning on October 19, 2022, TransRe Group. We also write life and health reinsurance coverages through General Re Life Corporation, General Reinsurance AG and Berkshire Hathaway Life Insurance Company of Nebraska (“BHLN”). We assume property and casualty risks under retroactive reinsurance contracts written through NICO and we write periodic payment annuity contracts through BHLN. A summary of BHRG’s premiums and pre-tax underwriting results follows (in millions). The retrospective adoption of ASU 2018-12 increased BHRG’s pre-tax underwriting earnings $76 million in 2022 and reduced pre-tax underwriting losses $175 million in 2021 from the amounts previously reported. [[GREPCENT_TABLE]] [["","Premiums earned","","Pre-tax underwriting earnings (loss)"],["","2023","","2022","","2021","","2023","","2022","","2021"],["Property/casualty","$","21,938","","$","16,040","","$","13,740","","$","3,508","","$","2,180","","$","667"],["Life/health","","5,072","","","5,224","","","5,648","","","354","","","109","","","(237",")"],["Retroactive reinsurance","","\u2014","","","\u2014","","","136","","","(1,541",")","","(668",")","","(782",")"],["Periodic payment annuity","","\u2014","","","582","","","655","","","(650",")","","(623",")","","(572",")"],["Variable annuity","","\u2014","","","\u2014","","","\u2014","","","233","","","467","","","169"],["","$","27,010","","$","21,846","","$","20,179","","$","1,904","","$","1,465","","$","(755",")"]] [[/GREPCENT_TABLE]] K-39 Management’s Discussion and Analysis Insurance—Underwriting Berkshire Hathaway Reinsurance Group (Continued) Property/casualty A summary of property/casualty reinsurance underwriting results follows (dollars in millions). [[GREPCENT_TABLE]] [["","2023","","","2022","","","2021"],["","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Premiums written","$","22,360","","","","","","$","16,962","","","","","","$","14,149"],["Premiums earned","$","21,938","","","","100.0","","","$","16,040","","","","100.0","","","$","13,740","","","","100.0"],["Losses and loss adjustment expenses","","12,664","","","","57.7","","","","10,605","","","","66.1","","","","9,878","","","","71.9"],["Underwriting expenses","","5,766","","","","26.3","","","","3,255","","","","20.3","","","","3,195","","","","23.2"],["Total losses and expenses","","18,430","","","","84.0","","","","13,860","","","","86.4","","","","13,073","","","","95.1"],["Pre-tax underwriting earnings","$","3,508","","","","","","$","2,180","","","","","","$","667"]] [[/GREPCENT_TABLE]] Premiums written in 2023 increased 31.8% over 2022, which increased 19.9% over 2021. Premiums written included $5.3 billion in 2023 and $1.0 billion in 2022 from TransRe Group. Excluding TransRe Group, premiums written in 2023 increased $1.1 billion (7.1%) compared to 2022, while premiums written increased 12.9% in 2022 compared to 2021. The increase in 2023 reflected net increases in new property business and higher rates. We have written considerable levels of property business in recent years and we generally do not retrocede the risks we assume. Our periodic underwriting earnings are subject to considerable volatility from significant catastrophe loss events. Losses and loss adjustment expenses increased $2.1 billion in 2023 and $727 million in 2022 versus the corresponding prior year. Overall, the loss ratio declined 8.4 percentage points in 2023 compared to 2022, which decreased 5.8 percentage points versus 2021. Losses included $3.2 billion in 2023 and $638 million in 2022 from TransRe Group. Excluding TransRe Group, losses and loss adjustment expenses decreased $509 million (5.1%) in 2023 compared to 2022 and increased $89 million in 2022 compared to 2021. Losses incurred from significant current year catastrophes were approximately $900 million in 2023, $2.0 billion in 2022 and $2.1 billion in 2021. The reductions in estimated ultimate liabilities for losses occurring in prior accident years were $1.4 billion in 2023, $1.6 billion in 2022 and $718 million in 2021, attributable to lower than expected property and casualty losses. Underwriting expenses increased $2.5 billion in 2023 compared to 2022. The expense ratio increased 6.0 percentage points in 2023 compared to 2022, which declined 2.9 percentage points compared to 2021. The comparative changes in the expense ratio were primarily attributable to changes in foreign currency exchange rates related to the remeasurement of certain non-U.S. Dollar denominated liabilities and changes in business mix, including the impact of TransRe Group. Underwriting expenses included pre-tax foreign currency exchange losses of $189 million in 2023 and gains of $371 million in 2022 and $173 million in 2021. Life/health A summary of our life/health reinsurance underwriting results follows (dollars in millions). [[GREPCENT_TABLE]] [["","2023","","","2022","","","2021"],["","Amount","","","%","","","Amount","","","%","","","Amount","","","%"],["Premiums written","$","5,093","","","","","","$","5,185","","","","","","$","5,621"],["Premiums earned","$","5,072","","","","100.0","","","$","5,224","","","","100.0","","","$","5,648","","","","100.0"],["Life and health benefits","","3,593","","","","70.8","","","","4,112","","","","78.7","","","","4,749","","","","84.1"],["Underwriting expenses","","1,125","","","","22.2","","","","1,003","","","","19.2","","","","1,136","","","","20.1"],["Total benefits and expenses","","4,718","","","","93.0","","","","5,115","","","","97.9","","","","5,885","","","","104.2"],["Pre-tax underwriting earnings (loss)","$","354","","","","","","$","109","","","","","","$","(237",")"]] [[/GREPCENT_TABLE]] Pre-tax underwriting earnings in 2023 included a gain of $134 million from the commutation of several U.S. life reinsurance contracts, which reduced premiums earned by $164 million and life and health benefits incurred and underwriting expenses by $298 million. Otherwise, premiums earned were substantially unchanged and life benefits incurred decreased 5.3% in 2023 versus 2022. The underwriting expense ratio increased 3.0 percentage points in 2023 versus 2022, primarily attributable to the impact of the commutations and increased underwriting expenses. K-40 Management’s Discussion and Analysis Insurance—Underwriting Berkshire Hathaway Reinsurance Group (Continued) Premiums written declined $436 million (7.8%) in 2022 compared to 2021, primarily due to unfavorable foreign currency translation effects and, to a lesser extent, lower volume in the Asia-Pacific region. Life and health benefits incurred declined $637 million (13.4%) in 2022 compared to 2021, primarily due to high pandemic-related life claims in the U.S., South Africa, India and Latin America in 2021. Retroactive reinsurance Pre-tax underwriting losses from retroactive reinsurance in each period derived from the amortization of deferred charges and the effects of changes in the estimated timing and amounts of future claim payments. Underwriting results also included pre-tax foreign currency exchange losses of $57 million in 2023 and pre-tax gains of $168 million in 2022 and $58 million in 2021. Before foreign currency exchange effects, pre-tax underwriting losses were $1.5 billion in 2023, $836 million in 2022 and $840 million in 2021. Estimated ultimate claim liabilities increased $1.1 billion in the fourth quarter of 2023, which net of changes in unamortized deferred charges, produced pre-tax underwriting losses of approximately $650 million. The increase in ultimate liabilities derived from higher asbestos, environmental and other casualty claims estimates. We increased estimated ultimate claim liabilities for prior years’ contracts $86 million in 2022 and reduced estimated ultimate liabilities $974 million in 2021. The reductions in 2021, net of changes in unamortized deferred charges, produced pre-tax underwriting earnings of $142 million. Unpaid losses assumed under retroactive reinsurance contracts were $34.6 billion at December 31, 2023, a decline of $768 million since December 31, 2022. Unamortized deferred charges on retroactive reinsurance contracts were $9.5 billion at December 31, 2023, a decline of $375 million since December 31, 2022. Deferred charge amortization will be included in underwriting earnings over the expected remaining claims settlement periods. Periodic payment annuity Periodic payment annuity business is price and demand sensitive and the supply of available business is affected by the timing of underlying legal claim settlements. Our volumes written may change rapidly due to changes in prices, as well as the level of competition. Beginning in the latter part of 2022, prices for new business declined to unacceptable levels and we have since not written new business. Our periodic payment annuity contracts produced pre-tax underwriting losses in each period from the recurring accretion of time-value discounted liabilities, which includes liabilities for contracts without life contingencies. Underwriting results also included pre-tax foreign currency exchange losses of $60 million in 2023, gains of $71 million in 2022 and losses of $18 million in 2021. Pre-tax underwriting losses before foreign currency exchange effects were $590 million in 2023, $694 million in 2022 and $554 million in 2021. Losses in 2022 included approximately $130 million from the termination of an existing reinsurance contract in which the settlement payable exceeded the carrying value of the liabilities. Discounted periodic payment annuity liabilities were $15.2 billion at December 31, 2023, including liabilities of $4.0 billion for contracts without life contingencies. We adopted ASU 2018-12 on January 1, 2023, which requires quarterly adjustments of the discount rates on contracts with life-contingent liabilities based upon prevailing interest rates, with the effects of discount rate changes included in other comprehensive income. Variable annuity Our variable annuity guarantee reinsurance contracts produced pre-tax earnings of $233 million in 2023, $467 million in 2022 and $169 million in 2021. Earnings are affected by changes in securities markets, interest rates and foreign currency exchange rates, which can be volatile. These contracts have been in run-off for many years. K-41 Management’s Discussion and Analysis Insurance—Investment Income A summary of net investment income attributable to our insurance operations follows (dollars in millions). [[GREPCENT_TABLE]] [["","","","","","","","","","Percentage change"],["","2023","","","2022","","","2021","","2023 vs 2022","","2022 vs 2021"],["Dividend income","$","5,500","","","$","6,039","","","$","5,060","","","(8.9",")%","","19.3","%"],["Interest and other investment income","","6,081","","","","1,685","","","","589","","*","","","186.1"],["Pre-tax net investment income","","11,581","","","","7,724","","","","5,649","","","49.9","","","36.7"],["Income taxes and noncontrolling interests","","2,014","","","","1,240","","","","842"],["Net investment income","$","9,567","","","$","6,484","","","$","4,807"],["Effective income tax rate","","17.4","%","","","16.0","%","","","14.9","%"]] [[/GREPCENT_TABLE]] —————— * Not meaningful. Dividend income declined $539 million (8.9%) in 2023 compared to 2022 and increased $979 million (19.3%) in 2022 compared to 2021. The reduction in 2023 reflected the impact of net dispositions of investments since the end of the third quarter of 2022, partially offset by higher dividend rates on certain of our holdings. The increase in 2022 was primarily attributable to a net increase in equity security investments. Dividend income also included $34 million in 2023, $46 million in 2022 and $121 million in 2021 from BHE preferred stock. Such amounts were deducted from earnings of the BHE segment. Dividend income varies from period to period due to changes in the investment portfolio and the frequency and timing of dividends from certain investees. Interest and other investment income increased $4.4 billion in 2023 compared to 2022 and increased $1.1 billion in 2022 compared to 2021. The increases were primarily due to increases in interest rates, as well as the inclusion of interest income from Alleghany’s insurance subsidiaries. We continue to hold substantial balances in short-term investments, including U.S. Treasury Bills. We continue to believe that maintaining ample liquidity is paramount and we insist on safety over yield with respect to short-term investments. Invested assets of our insurance businesses derive from shareholder capital and net liabilities assumed under insurance and reinsurance contracts or “float.” The major components of float are unpaid losses and loss adjustment expenses, including liabilities under retroactive reinsurance contracts, life, annuity and health benefit liabilities, unearned premiums and other liabilities due to policyholders, which are reduced by insurance premiums receivable, reinsurance receivables, deferred charges assumed under retroactive reinsurance contracts and deferred policy acquisition costs. The effect of discount rate changes recorded in accumulated other comprehensive income in the Consolidated Balance Sheets for long-duration insurance contracts are excluded from float, as such amounts are not included in underwriting earnings in the Consolidated Statements of Earnings. Float was approximately $169 billion at December 31, 2023, $164 billion at December 31, 2022 and $147 billion at December 31, 2021. Our combined insurance operations generated pre-tax underwriting gains in 2023 and 2021, and the average cost of float was negative in those years. Our pre-tax underwriting losses in 2022 were $22 million and the cost of float was nominal. A summary of cash and investments held in our insurance businesses as of December 31, 2023 and 2022 follows (in millions). [[GREPCENT_TABLE]] [["","December 31,"],["","2023","","","2022"],["Cash, cash equivalents and U.S. Treasury Bills","$","121,845","","","$","86,816"],["Equity securities","","345,653","","","","298,934"],["Fixed maturity securities","","23,617","","","","24,998"],["Other","","1,188","","","","3,417"],["","$","492,303","","","$","414,165"]] [[/GREPCENT_TABLE]] K-42 Management’s Discussion and Analysis Insurance—Investment Income Fixed maturity investments as of December 31, 2023 were as follows (in millions). [[GREPCENT_TABLE]] [["","Amortized Cost","","","Unrealized Gains (Losses)","","","Carrying Value"],["U.S. Treasury, U.S. government corporations and agencies","$","10,300","","","$","(40",")","","$","10,260"],["Foreign governments","","11,695","","","","17","","","","11,712"],["Corporate bonds","","1,205","","","","238","","","","1,443"],["Other","","186","","","","16","","","","202"],["","$","23,386","","","$","231","","","$","23,617"]] [[/GREPCENT_TABLE]] U.S. government obligations are rated AA+ or Aaa by the major rating agencies. Approximately 95% of our foreign government obligations were rated AA or higher by at least one of the major rating agencies. Foreign government securities include obligations issued or unconditionally guaranteed by national or provincial government entities. Railroad Burlington Northern Santa Fe, LLC (“BNSF”) operates one of the largest railroad systems in North America, with over 32,500 route miles of track in 28 states. BNSF also operates in three Canadian provinces. BNSF classifies its major business groups by type of product shipped including consumer products, industrial products, agricultural products and coal. A summary of BNSF’s earnings follows (dollars in millions). [[GREPCENT_TABLE]] [["","","","","","","","","Percentage change"],["","","2023","","2022","","2021","","2023 vs 2022","","2022 vs 2021"],["Railroad operating revenues","","$","23,474","","$","25,203","","$","22,513","","","(6.9",")%","","11.9","%"],["Railroad operating expenses:"],["Compensation and benefits","","","5,500","","","5,253","","","4,696","","","4.7","","","11.9"],["Fuel","","","3,684","","","4,581","","","2,766","","","(19.6",")","","65.6"],["Purchased services","","","2,049","","","2,102","","","2,033","","","(2.5",")","","3.4"],["Depreciation and amortization","","","2,617","","","2,517","","","2,444","","","4.0","","","3.0"],["Equipment rents, materials and other","","","2,209","","","2,147","","","1,763","","","2.9","","","21.8"],["Total","","","16,059","","","16,600","","","13,702","","","(3.3",")","","21.2"],["Railroad operating earnings","","","7,415","","","8,603","","","8,811"],["Interest expense","","","(1,048",")","","(1,025",")","","(1,032",")"],["Other revenues (expenses), net","","","247","","","130","","","82"],["Pre-tax earnings","","","6,614","","","7,708","","","7,861"],["Income taxes","","","1,527","","","1,762","","","1,871"],["Net earnings","","$","5,087","","$","5,946","","$","5,990"],["Effective income tax rate","","","23.1","%","","22.9","%","","23.8","%"]] [[/GREPCENT_TABLE]] A summary of BNSF’s railroad freight volumes by business group (cars/units in thousands) follows. [[GREPCENT_TABLE]] [["","","Cars/Units","","Percentage change"],["","","2023","","2022","","2021","","2023 vs 2022","","2022 vs 2021"],["Consumer products","","","4,765","","","5,202","","","5,673","","","(8.4",")%","","(8.3",")%"],["Industrial products","","","1,605","","","1,618","","","1,709","","","(0.8",")","","(5.3",")"],["Agricultural products","","","1,165","","","1,200","","","1,224","","","(2.9",")","","(2.0",")"],["Coal","","","1,468","","","1,529","","","1,529","","","(4.0",")","","\u2014"],["","","","9,003","","","9,549","","","10,135","","","(5.7",")","","(5.8",")"]] [[/GREPCENT_TABLE]] 2023 versus 2022 Railroad operating revenues declined 6.9% in 2023 compared to 2022, reflecting an overall volume decrease of 5.7% and a decrease in average revenue per car/unit of 0.6%, primarily attributable to lower fuel surcharge revenue, partially offset by favorable price and mix. Pre-tax earnings were $6.6 billion in 2023, a decline of 14.2% from 2022, reflecting lower volumes and higher non-fuel operating costs, partially offset by lower fuel costs. K-43 Management’s Discussion and Analysis Railroad Operating revenues from consumer products declined 14.7% in 2023 to $7.9 billion compared to 2022, reflecting a volume decrease of 8.4% and lower average revenue per car/unit. The volume decrease was primarily due to lower intermodal shipments resulting from reduced West Coast imports, the loss of an intermodal customer and competition from lower spot rates in the trucking market, which has impacted our domestic intermodal demand. These declines were partially offset by an increase in automotive volume from higher vehicle production. Operating revenues from industrial products were $5.7 billion in 2023, an increase of 1.8% from 2022, reflecting higher average revenue per car/unit, partially offset by a volume decrease of 0.8%. The volume decline was primarily due to lower demand for chemicals, plastics, minerals, paper and lumber, partially offset by increased shipments of steel and aggregates from infrastructure demand. Operating revenues from agricultural products decreased 2.8% to $5.6 billion in 2023 compared to 2022, attributable to a volume decrease of 2.9%, partially offset by slightly higher average revenue per car/unit. The volume decrease was primarily due to lower grain exports, partially offset by higher volumes of domestic grains and feedstocks and renewable diesel. Operating revenues from coal declined 3.4% to $3.8 billion in 2023 compared to 2022. The revenue decrease was attributable to a volume decrease of 4.0%, partially offset by higher average revenue per car/unit. The volume decline reflected moderating demand attributable to lower natural gas prices. Railroad operating expenses were $16.1 billion in 2023, a decline of $541 million (3.3%) compared to 2022. The ratio of railroad operating expenses to railroad operating revenues increased 2.5 percentage points to 68.4% in 2023 versus 2022. Fuel expenses declined $897 million (19.6%) compared to 2022, reflecting lower average fuel prices, lower volumes and improved efficiency. Compensation and benefits expenses increased $247 million (4.7%) in 2023 compared to 2022, primarily due to higher headcount and wage inflation. Other revenues (expenses), net increased 90% compared to 2022, primarily due to an increase in interest income driven by higher interest rates. 2022 versus 2021 Railroad operating revenues increased 11.9% in 2022 compared to 2021, reflecting an 18.9% increase in average revenue per car/unit, including the impact from higher fuel surcharge revenue driven by higher fuel prices, partially offset by lower volumes of 5.8%. BNSF’s pre-tax earnings decreased 1.9% in 2022 from 2021. Pre-tax earnings in 2022 were impacted by lower volumes and higher fuel and other operating costs, offset by higher yield and fuel surcharge revenue. Operating revenues from consumer products increased 11.8% in 2022 to $9.2 billion compared to 2021, reflecting higher average revenue per car/unit, partially offset by a volume decrease of 8.3%. The volume decrease was primarily due to lower intermodal shipments, resulting from supply chain disruptions and lower West Coast imports during the second half of the year. Operating revenues from industrial products were $5.6 billion in 2022, an increase of 5.6% from 2021, reflecting higher average revenue per car/unit, partially offset by a volume decrease of 5.3%. The volume decrease was primarily due to a decrease in petroleum products related to lower demand for shipments of crude by rail and lower building products, steel and taconite shipments, partially offset by increased mineral shipments. Operating revenues from agricultural products increased 12.6% to $5.7 billion in 2022 compared to 2021. The revenue increase reflected higher revenue per car/unit partially offset by lower volumes of 2.0%. The decrease in volumes was primarily due to lower grain exports and fertilizer shipments, partially offset by higher volumes of domestic grains, renewable diesel and feedstocks. Operating revenues from coal increased 21.7% to $3.9 billion in 2022 compared to 2021, attributable to higher average revenue per car/unit. Coal volumes were unchanged compared to 2021. Railroad operating expenses were $16.6 billion in 2022, an increase of $2.9 billion (21.2%) compared to 2021. Our ratio of railroad operating expenses to railroad operating revenues increased 5.0 percentage points to 65.9% in 2022 versus 2021. The operating expense increase was primarily attributable to significant increases in the cost of fuel, as well as higher compensation and benefits expenses. Compensation and benefits expenses increased $557 million (11.9%) in 2022 compared to 2021, primarily due to wage inflation, including the impact from the ratified union labor agreements, higher health and welfare costs and lower productivity. Fuel expenses increased $1.8 billion (65.6%) in 2022 compared to 2021, primarily due to higher average fuel prices, partially offset by lower volumes. Equipment rents, materials and other expenses increased $384 million (21.8%) in 2022 compared to 2021, due to general inflation, lower gains from land and easement sales and higher casualty and litigation costs. K-44 Management’s Discussion and Analysis Utilities and Energy We currently own 92% of Berkshire Hathaway Energy Company (“BHE”), which operates a global energy business. BHE’s domestic regulated utility interests include PacifiCorp, MidAmerican Energy Company (“MEC”) and NV Energy. BHE’s natural gas pipelines consist of five domestic regulated interstate natural gas pipeline systems and a liquefied natural gas export, import and storage facility. Other energy businesses include subsidiaries that operate two regulated electricity distribution businesses in Great Britain (“Northern Powergrid”), a regulated electricity transmission-only business in Alberta, Canada, a diversified portfolio of mostly renewable independent power projects and investments and an unregulated retail energy services company. BHE also operates a residential real estate brokerage business and a large network of real estate brokerage franchises in the United States. The rates our regulated businesses charge customers for energy and services are largely based on the costs of business operations, including income taxes and a return on capital, and are subject to regulatory approval. To the extent such costs are not allowed in the approved rates, operating results will be adversely affected. A summary of BHE’s net earnings follows (dollars in millions). [[GREPCENT_TABLE]] [["","2023","","","2022","","","2021"],["Revenues:"],["Energy operating revenue","$","21,280","","","$","21,069","","","$","18,935"],["Real estate operating revenue","","4,322","","","","5,268","","","","6,215"],["Other income (loss)","","406","","","","56","","","","(54",")"],["Total revenue","","26,008","","","","26,393","","","","25,096"],["Costs and expense:"],["Energy cost of sales","","7,057","","","","6,757","","","","5,504"],["Energy operating expenses","","11,412","","","","9,233","","","","8,535"],["Real estate operating costs and expenses","","4,316","","","","5,117","","","","5,710"],["Interest expense","","2,283","","","","2,140","","","","2,054"],["Total costs and expenses","","25,068","","","","23,247","","","","21,803"],["Pre-tax earnings","","940","","","","3,146","","","","3,293"],["Income tax benefit*","","(2,022",")","","","(1,629",")","","","(1,153",")"],["Net earnings after income taxes","","2,962","","","","4,775","","","","4,446"],["Noncontrolling interests of BHE subsidiaries","","352","","","","423","","","","399"],["Net earnings attributable to BHE","","2,610","","","","4,352","","","","4,047"],["Noncontrolling interests and preferred stock dividends","","279","","","","448","","","","475"],["Net earnings attributable to Berkshire Hathaway shareholders","$","2,331","","","$","3,904","","","$","3,572"],["Effective income tax rate","","(215.1",")%","","","(51.8",")%","","","(35.0",")%"]] [[/GREPCENT_TABLE]] —————— * Includes significant production tax credits from wind-powered electricity generation. The discussion of BHE’s operating results that follows is based on after-tax earnings, reflecting how the energy businesses are managed and evaluated. A summary of net earnings attributable to BHE follows (dollars in millions). [[GREPCENT_TABLE]] [["","","","","","","","","","Percentage change"],["","2023","","","2022","","","2021","","2023 vs 2022","","2022 vs 2021"],["U.S. utilities","$","906","","","$","2,295","","","$","2,211","","","(60.5",")%","","3.8","%"],["Natural gas pipelines","","1,079","","","","1,040","","","","807","","","3.8","","","28.9"],["Other energy businesses","","1,024","","","","1,356","","","","987","","","(24.5",")","","37.4"],["Real estate brokerage","","13","","","","100","","","","387","","","(87.0",")","","(74.2",")"],["Corporate interest and other","","(412",")","","","(439",")","","","(345",")","","(6.2",")","","27.2"],["","$","2,610","","","$","4,352","","","$","4,047","","","(40.0",")","","7.5"]] [[/GREPCENT_TABLE]] K-45 Management’s Discussion and Analysis Utilities and Energy 2023 versus 2022 Our U.S. utilities operate independently in several states, including Oregon, Utah, Wyoming and other Western states (PacifiCorp), Iowa and Illinois (MEC) and Nevada (NV Energy). After-tax earnings decreased $1.4 billion in 2023 compared to 2022. The decline reflected an increase in energy operating expenses, including an increase in estimated pre-tax loss accruals of $1.6 billion, net of expected insurance recoveries, for wildfires in 2020 and in 2022 that arose in Oregon and California (“Wildfires”). See Note 27 to the Consolidated Financial Statements for additional information on the Wildfires. The decline in earnings also reflected higher interest expense and lower electric utility margin (operating revenue less cost of sales). These items were partially offset by increases in interest and other income and lower depreciation and amortization expense. The U.S. utilities’ electric utility margin was $7.5 billion in 2023, a decrease of $170 million (2.2%) versus 2022. The decline reflected lower volumes and wholesale rates, as well as increased energy costs, partially offset by an increase in retail customer rates in certain territories. Retail customer volumes decreased 0.8% overall (down 0.8% at PacifiCorp and 2.6% at NV Energy and up 1.3% at MEC) in 2023 compared to 2022, primarily due to the unfavorable impact of weather, partially offset by higher customer usage and an overall increase in the average number of customers. After-tax earnings of natural gas pipelines increased $39 million (3.8%) in 2023 compared to 2022. The increase reflected higher regulated transportation and storage services revenues from certain general rate cases and increased earnings from the acquisition of an additional 50% ownership interest in the Cove Point liquefied natural gas export, import and storage facility on September 1, 2023, partially offset by higher operating expenses. After-tax earnings of other energy businesses decreased $332 million (24.5%) in 2023 compared to 2022. The decline reflected lower earnings at Northern Powergrid due to unfavorable results at a natural gas exploration project, including the write-off of capitalized exploration costs and lower gas production volumes and prices, as well as from higher deferred income tax expense related to the enactment of the Energy Profits Levy income tax in the United Kingdom. The earnings decline was also attributable to lower earnings from renewable energy and retail services businesses. The decline in renewable energy and retail services earnings was primarily due to lower income tax benefits, higher operating expenses, lower solar and wind generation at owned projects and the impact of unfavorable changes in valuations of derivatives contracts, partially offset by debt extinguishment gains. After-tax earnings of real estate brokerage decreased $87 million (87.0%) in 2023 compared to 2022. The decrease reflected lower brokerage services revenues and margins, primarily due to a 19% reduction in closed brokerage transaction volumes, as well as lower mortgage services revenues and margins from a 28% decrease in closed transaction volumes. These declines were attributable to the impact of rising interest rates and lower existing home sales. Corporate interest and other after-tax earnings increased $27 million in 2023 compared to 2022, reflecting higher interest and other income, partially offset by unfavorable consolidated income tax adjustments, largely state-related, and higher BHE corporate interest expense from an April 2022 debt issuance. 2022 versus 2021 The U.S. utilities after-tax earnings increased $84 million in 2022 compared to 2021. The earnings increase reflected higher electric utility margin and a $157 million increase in production tax credits recognized on new wind-powered generating facilities placed in-service at PacifiCorp and MEC, partially offset by higher operating expenses and state income taxes. Operating expenses increased due to higher costs associated with certain regulatory mechanisms at MEC and NV Energy, increases in general and plant maintenance costs, incremental depreciation expense from additional assets placed in-service and an increase in estimated pre-tax loss accruals of $60 million for the Wildfires, net of expected insurance recoveries. The U.S. utilities’ electric utility margin was $7.7 billion in 2022, an increase of $586 million (8.3%) compared to 2021. The increase reflected higher operating revenue from favorable retail and wholesale pricing and increases in retail customer volumes, partially offset by increases in thermal generation and purchased power costs. Retail customer volumes increased 2.4% (1.6% at PacifiCorp, 4.3% at MEC and 2.2% at NV Energy) in 2022 compared to 2021, primarily due to higher customer usage, an increase in the average number of customers and the favorable impact of weather. K-46 Management’s Discussion and Analysis Utilities and Energy Natural gas pipelines’ after-tax earnings increased $233 million in 2022 compared to 2021. Substantially all of the increase was derived from BHE GT&S, primarily attributable to higher regulated storage and service revenues from a general rate case settlement and higher revenues and margins from non-regulated activities, as well as income tax adjustments. Other energy businesses’ after-tax earnings increased $369 million in 2022 compared to 2021. The increase was primarily due to increased wind tax equity investment earnings of $200 million and the impact in 2021 on income tax expense of $109 million related to the enactment in 2021 of an increase in the United Kingdom corporate income tax rate from 19% to 25%, effective April 1, 2023. The earnings increase also reflected higher operating revenue from owned renewable energy projects and earnings from new gas exploration and solar projects, partially offset by lower earnings from natural gas generating facilities and unfavorable foreign currency translation effects. The increase in wind tax equity investment earnings was attributable to the impact of losses in 2021 on pre-existing tax equity investments due to the February 2021 winter storms, as well as increased income tax benefits from projects reaching commercial operation over the past twelve months. Real estate brokerage after-tax earnings decreased $287 million in 2022 compared to 2021. The decrease reflected lower brokerage services revenues and margins, primarily due to an 11% reduction in closed brokerage transaction volumes, as well as lower mortgage services revenues and margins from a 40% decrease in closed transaction volumes, attributable to lower homeowner refinancing activity resulting from rising interest rates. Corporate interest and other after-tax earnings decreased $94 million in 2022 compared to 2021. The decrease was primarily due to lower state income tax benefits and higher interest expense from corporate debt issued in 2022. Pilot Travel Centers, LLC (“PTC”) PTC operates travel centers, primarily under the names Pilot or Flying J, and fuel-only retail locations. PTC also operates large wholesale fuel and fuel marketing platforms in the U.S. A substantial portion of PTC’s revenues and earnings derive from marketing fuel on a wholesale and retail basis and from other energy-related activities. Through January 31, 2023, we owned a 38.6% interest in PTC, which we accounted for under the equity method. Our 38.6% proportionate share of PTC’s net earnings for the month ending January 31, 2023 and twelve months ending December 31, 2022 and 2021 were included in equity method earnings in the accompanying Consolidated Statements of Earnings. Our equity method earnings in PTC are included in non-controlled businesses discussed on page K-56. On January 31, 2023, we acquired an additional 41.4% interest in PTC and owned an 80% controlling financial interest as of that date. Thus, we began consolidating PTC’s results of operations in our Consolidated Statements of Earnings on February 1, 2023. PTC’s earnings for the eleven months ending December 31, 2023 are summarized below (in millions). [[GREPCENT_TABLE]] [["","","Eleven Months Ending"],["","","December 31, 2023"],["Revenues","","$","51,739"],["Cost of sales","","","47,505"],["Operating expenses","","","2,852"],["Interest expense","","","414"],["Pre-tax earnings","","","968"],["Income taxes and noncontrolling interests","","","365"],["Net earnings attributable to Berkshire Hathaway shareholders","","$","603"]] [[/GREPCENT_TABLE]] PTC’s consolidated pre-tax earnings for the years ending December 31, 2023 and 2022 are summarized below. Revenues, costs and expenses for 2022 and the first month of 2023 were not included in our Consolidated Financial Statements, whereas such information for the eleven months ending December 31, 2023 were included in our Consolidated Financial Statements (dollars in millions). [[GREPCENT_TABLE]] [["","","2023","","","2022","","","Percentage Change"],["Revenues","","$","56,756","","","$","72,739","","","","(22.0",")%"],["Cost of sales","","","52,196","","","","67,602","","","","(22.8",")"],["Operating expenses","","","3,067","","","","2,583","","","","18.7"],["Interest expense","","","437","","","","224","","","","95.1"],["Pre-tax earnings","","$","1,056","","","$","2,330","","","","(54.7",")"]] [[/GREPCENT_TABLE]] K-47 Management’s Discussion and Analysis Pilot Travel Centers, LLC (“PTC”) PTC’s revenues and earnings are highly dependent on diesel fuel and gasoline volumes, prices and margins. Revenues for the twelve months ended December 31, 2023 were approximately $56.8 billion, a decline of $16.0 billion (22.0%) from 2022. The decline reflected lower fuel prices, as well as lower fuel sales volumes and in-store sales. PTC sold approximately 16.2 billion gallons of diesel fuel, gasoline and other fuel-related products in 2023 compared to 18.4 billion gallons in 2022. The decline in fuel volumes was predominantly in the wholesale fuel and fuel marketing businesses. Cost of sales in 2023 reflected lower fuel costs than in 2022. Depreciation and amortization expense was $832 million in 2023 and $436 million in 2022. The increase was due to the application of acquisition accounting beginning on February 1, 2023. Interest expense increased $213 million in 2023 compared to 2022, primarily due to higher interest rates. Manufacturing, Service and Retailing A summary of revenues and earnings of our manufacturing, service and retailing businesses follows (dollars in millions). [[GREPCENT_TABLE]] [["","","","","","","","","","","","Percentage change"],["","","2023","","","2022","","","2021","","","2023 vs 2022","","","2022 vs 2021"],["Revenues"],["Manufacturing","","$","75,405","","","$","75,781","","","$","68,730","","","","(0.5",")%","","","10.3","%"],["Service and retailing","","","92,603","","","","91,512","","","","84,282","","","","1.2","","","","8.6"],["","","$","168,008","","","$","167,293","","","$","153,012","","","","0.4","","","","9.3"],["Pre-tax earnings"],["Manufacturing","","$","11,445","","","$","11,177","","","$","9,841","","","","2.4","%","","","13.6","%"],["Service and retailing","","","5,176","","","","5,042","","","","4,711","","","","2.7","","","","7.0"],["","","","16,621","","","","16,219","","","","14,552","","","","2.5","","","","11.5"],["Income taxes and noncontrolling interests","","","3,862","","","","3,707","","","","3,432"],["Net earnings*","","$","12,759","","","$","12,512","","","$","11,120"],["Effective income tax rate","","","22.5","%","","","22.2","%","","","23.0","%"],["Pre-tax earnings as a percentage of revenues","","","9.9","%","","","9.7","%","","","9.5","%"]] [[/GREPCENT_TABLE]] —————— * Excludes certain acquisition accounting expenses, which primarily related to the amortization of identified intangible assets recorded in connection with our business acquisitions. The after-tax acquisition accounting expenses excluded from earnings were $693 million in 2023, $681 million in 2022 and $690 million in 2021. These expenses are included in “Other” in the summary of earnings on page K-35 and in the “Other” earnings table on page K-57. Manufacturing Our manufacturing group includes a variety of industrial, building and consumer products businesses. A summary of revenues and pre-tax earnings of our manufacturing operations follows (dollars in millions). [[GREPCENT_TABLE]] [["","","","","","","","","","","","Percentage change"],["","","2023","","","2022","","","2021","","","2023 vs 2022","","","2022 vs 2021"],["Revenues"],["Industrial products","","$","34,884","","","$","30,824","","","$","28,176","","","","13.2","%","","","9.4","%"],["Building products","","","25,965","","","","28,896","","","","24,974","","","","(10.1",")","","","15.7"],["Consumer products","","","14,556","","","","16,061","","","","15,580","","","","(9.4",")","","","3.1"],["","","$","75,405","","","$","75,781","","","$","68,730"],["Pre-tax earnings"],["Industrial products","","$","5,686","","","$","4,862","","","$","4,469","","","","16.9","%","","","8.8","%"],["Building products","","","4,187","","","","4,789","","","","3,390","","","","(12.6",")","","","41.3"],["Consumer products","","","1,572","","","","1,526","","","","1,982","","","","3.0","","","","(23.0",")"],["","","$","11,445","","","$","11,177","","","$","9,841"],["Pre-tax earnings as a percentage of revenues"],["Industrial products","","","16.3","%","","","15.8","%","","","15.9","%"],["Building products","","","16.1","%","","","16.6","%","","","13.6","%"],["Consumer products","","","10.8","%","","","9.5","%","","","12.7","%"]] [[/GREPCENT_TABLE]] K-48 Management’s Discussion and Analysis Manufacturing, Service and Retailing Industrial products The industrial products group includes metal products for aerospace, power and general industrial markets (Precision Castparts Corp. (“PCC”)), specialty chemicals (The Lubrizol Corporation (“Lubrizol”)), metal cutting tools/systems (IMC International Metalworking Companies (“IMC”)), and Marmon, which consists of more than 100 autonomous manufacturing and service businesses, internally aggregated into eleven groups, and includes equipment leasing for the rail, intermodal tank container and mobile crane industries. The industrial products group also includes equipment and systems for the livestock and agricultural industries (CTB International) and a variety of industrial products for diverse markets (Scott Fetzer and LiquidPower Specialty Products). Beginning October 19, 2022, this group includes the structural steel fabrication products business conducted through W&W|AFCO Steel (“W&W|AFCO”), acquired in connection with the Alleghany acquisition. Additionally, the Alleghany acquisition included certain other smaller manufacturers that became part of Marmon. 2023 versus 2022 Revenues of the industrial products group in 2023 increased $4.1 billion (13.2%) and pre-tax earnings increased $824 million (16.9%) compared to 2022. Pre-tax earnings as a percentage of revenues in 2023 was 16.3%, an increase of 0.5 percentage points compared to 2022. PCC’s revenues were $9.3 billion in 2023, an increase of $1.7 billion (22.7%) compared to 2022. PCC derives significant revenues and earnings from aerospace products. The revenue increase in 2023 was primarily attributable to higher demand for aerospace products, while power/energy and general and industrial products also contributed to the overall revenue increase. Long-term industry forecasts continue to show growth and strong demand for air travel and aerospace products. PCC’s pre-tax earnings were $1.5 billion in 2023, an increase of 30.0% compared to 2022. The improved results in 2023 reflected increases in sales and improving manufacturing and operating efficiencies in aerospace businesses, partially offset by operating losses in energy products businesses. PCC continues to strive to improve manufacturing efficiencies, maintain safety and prepare for increasing demand for its products. Continued growth in PCC’s revenues and earnings will be predicated on the ability to successfully increase production levels to match the expected growth in aerospace product demand. Lubrizol’s revenues were $6.4 billion in 2023, a decline of 4.0% compared to 2022. The revenue decline was primarily due to a 7.9% decline in volumes and unfavorable foreign currency effects, partially offset by higher selling prices. The decline in sales volumes in 2023 was attributable to general market weakness and customer efforts to reduce their inventory levels. Lubrizol’s pre-tax earnings in 2023 were relatively unchanged compared to 2022. Earnings included insurance recoveries of $11 million in 2023 and $242 million in 2022 in connection with fires at the Rockton, Illinois facility in 2021 and the Rouen, France facility in 2019. Excluding insurance recoveries, earnings in 2023 were higher due to the favorable impacts of higher selling prices, favorable changes in product mix and lower raw material costs, partially offset by the impact of lower sales volumes, unfavorable foreign currency translation effects and higher operating expenses. Marmon’s revenues were $11.9 billion in 2023, an increase of $1.2 billion (11.6%) compared to 2022. Business acquisitions, including AP Emissions Technologies and three former Alleghany businesses: Kentucky Trailer, Wilbert Funeral Services, Inc. and Wilbert Plastics Services, accounted for substantially all of the comparative increase. In addition, the Rail & Leasing, Water Technologies, Medical, Metal Services and Crane Services groups generated higher revenues in 2023, primarily due to higher volumes and pricing improvements. Revenues in 2023 of the Electrical group’s building wire business and the Metal Services and Plumbing & Refrigeration groups were negatively impacted by lower metals prices, while revenues of the Transportation Products group reflected reduced customer demand, which accelerated over the second half of 2023. Marmon’s pre-tax earnings increased 13.1% in 2023 compared to 2022. The earnings increase reflected the favorable impact of business acquisitions of $90 million and losses of approximately $90 million in 2022 from the shutdown of the Rail & Leasing group business in Russia. Earnings from eight of Marmon’s eleven business groups increased in 2023 compared to 2022. The Rail & Leasing, Water Technologies and Plumbing & Refrigeration groups generated higher organic earnings in 2023, which were offset by lower earnings from the Electrical group’s building wire business and from the Metals Services and Medical groups. K-49 Management’s Discussion and Analysis Manufacturing, Service and Retailing IMC’s revenues increased 8.0% to $4.0 billion in 2023 compared to 2022. The increase reflected the impact of business acquisitions, organic sales growth in North America and other regions and higher interest income due to higher interest rates, partially offset by lower revenues in the Asia-Pacific region, unfavorable foreign currency translation from a stronger U.S. Dollar and the impact of ongoing geopolitical conflicts. IMC’s pre-tax earnings increased 6.9% in 2023 compared to 2022, primarily attributable to higher interest income and to a lesser extent increased operating earnings. The impact of the revenue increase was largely offset by higher raw material costs, changes in sales mix and the adverse effects of geopolitical conflicts. A large portion of IMC’s products are manufactured in Israel. To date, IMC’s operations in Israel have not been significantly impacted by the terrorist attack on Israel on October 7, 2023, and the ongoing conflicts in the region. 2022 versus 2021 Revenues of the industrial products group increased $2.6 billion (9.4%) and pre-tax earnings increased $393 million (8.8%) in 2022 compared to 2021. Pre-tax earnings as a percentage of revenues in 2022 was 15.8%, a decrease of 0.1 percentage points compared to 2021. PCC’s revenues were $7.5 billion in 2022, an increase of $1.1 billion (16.5%) compared to 2021. The revenue increase in 2022 was primarily attributable to higher demand for aerospace products. Commercial aircraft delivery rates by original equipment manufacturers (“OEMs”) of narrow-body aircraft rebounded since the onset of the pandemic. Deliveries of wide-body aircraft were relatively low, in part, attributable to the pause in the Boeing 787 program. However, Boeing resumed deliveries in the third quarter of 2022. PCC’s pre-tax earnings were $1.2 billion in 2022, an increase of 1.6% compared to 2021. PCC’s results in 2022 were negatively affected by increased costs for labor and training, materials and utilities and supply chain disruptions, as well as a $59 million reduction in pension plan income. Lubrizol’s revenues were $6.7 billion in 2022, an increase of 3.2% compared to 2021. The revenue increase reflected higher average selling prices, partially offset by lower volumes and adverse foreign currency translation effects from the stronger U.S. Dollar. Sales volumes throughout 2022 were restricted by effects of supply constraints for certain raw materials and the effects of unplanned plant maintenance activities, both of which limited Lubrizol’s production capabilities. The increase in average selling prices was driven by escalating prices for raw materials, including oil feedstocks, as well as for utilities, packaging, shipping and freight costs. Lubrizol’s pre-tax earnings increased 48.6% in 2022 compared to 2021. Pre-tax earnings in 2022 and 2021 included insurance recoveries of $242 million and $55 million, respectively, related to the Rockton and Rouen fires. Earnings in 2022 also included aggregate losses related to the Rockton fire of $36 million compared to aggregate losses and asset impairment charges in 2021 of $257 million related to the Rockton fire and an underperforming business in the Advanced Materials product lines. Earnings in 2022 were also negatively impacted by rising raw material costs, lower sales volumes, higher unplanned maintenance expenses, and by unfavorable foreign currency translation effects, partially offset by higher selling prices. Earnings in 2021 were negatively impacted by severe winter storms, which caused industry-wide temporary facilities closures, including at our Additives facilities, which experienced lost sales and incremental operating costs. Marmon’s revenues were $10.7 billion in 2022, an increase of $934 million (9.6%) compared to 2021. Nearly all of Marmon’s business groups generated higher revenues in 2022, led by significant increases in the Transportation, Retail Solutions, Metal Services and Crane groups, which contributed 82% of the increase. These increases generally reflected higher volumes and prices in our heavy-duty truck & trailer, shopping cart and store shelving businesses, stronger demand in Canada for metal services and higher demand in the mining and infrastructure markets. Revenues of most of Marmon’s other groups, particularly those serving the transit, oil & gas, utility and restaurant markets, also increased in 2022, reflecting higher volumes. These increases were partially offset by lower lease revenues in the Rail & Leasing group, reflecting lower renewal rates and fewer third-party tank car sales. K-50 Management’s Discussion and Analysis Manufacturing, Service and Retailing Marmon’s pre-tax earnings increased 11.3% in 2022 compared to 2021. Earnings in 2022 reflected increases in the Transportation, Metal Services, Retail, Crane and several other business groups due to higher volumes and pricing, which were partially offset by lower earnings from the Rail & Leasing group, reflecting lower renewal rates, higher repair costs and the losses related to the shutdown of its business in Russia. IMC’s revenues increased 4.5% to $3.7 billion in 2022 compared to 2021, reflecting increased sales in most regions, partially offset by the foreign currency translation effects of a stronger U.S. Dollar, lower sales in China (attributable to the pandemic) and the effects of the Russia-Ukraine conflict in Europe. IMC’s pre-tax earnings decreased 2.5% in 2022 compared to 2021, primarily due to lower average gross sales margins from changes in product sales mix and higher raw material costs. Earnings were also negatively affected by unfavorable foreign currency translation effects and the Russian-Ukraine conflict. Building products The building products group includes manufactured and site-built home construction and related lending and financial services (Clayton Homes), flooring (Shaw), insulation, roofing and engineered products (Johns Manville), bricks and masonry products (Acme Building Brands), paint and coatings (Benjamin Moore) and residential and commercial construction and engineering products and systems (MiTek). 2023 versus 2022 Revenues of the building products group decreased $2.9 billion (10.1%) and pre-tax earnings decreased $602 million (12.6%) in 2023 compared to 2022. Pre-tax earnings as percentages of revenues were 16.1% in 2023 and 16.6% in 2022. Our building products businesses benefited in recent years from the low interest rate environment and strong residential and commercial construction markets. The effects of significant increases in home mortgage interest rates in the U.S. over the past year has slowed demand for our home building businesses and our other building products businesses. Such effects have been partially mitigated by new construction activity, resulting from low supplies of pre-existing homes for sale. Clayton Homes’ revenues were approximately $11.4 billion in 2023, a decrease of $1.3 billion (10.3%) compared to 2022. Revenues from home sales decreased $1.6 billion (15.3%) in 2023 to approximately $8.8 billion, primarily due to lower unit sales and changes in product mix. New home unit sales declined 13.7% in 2023, reflecting lower factory-built and site-built homes. Financial services revenues, which include mortgage, insurance and interest income from lending activities, increased 12.2% in 2023 compared to 2022, primarily due to increased interest income on higher average loan balances. Loan balances, net of allowances for credit losses, were approximately $23.8 billion as of December 31, 2023, an increase of approximately $2.5 billion from December 31, 2022. Pre-tax earnings of Clayton Homes were approximately $2.0 billion in 2023, a decrease of $326 million (13.8%) compared to 2022. Earnings in 2023 reflected lower earnings from the home building businesses, partially offset by increased earnings from financial services. The decline in earnings from the home building businesses reflected the reduction in sales, a lower overall gross sales margin rate and higher operating expenses relative to sales. The increase in financial services earnings was primarily attributable to increased net interest income, partially offset by increased expected loan loss provisions and higher insurance claims. Aggregate revenues of our other building products businesses were approximately $14.5 billion in 2023, a decrease of 10.0% versus 2022. The decline in revenues reflected overall lower sales volumes and changes in product mix, partly offset by higher average selling prices. Pre-tax earnings of the other building products businesses were approximately $2.1 billion in 2023, a decrease of 11.4% compared to 2022. Pre-tax earnings as a percentage of revenues were 14.7% in 2023, a 0.3 percentage point decrease compared to 2022. The earnings decline in 2023 was driven by lower sales volumes, reduced manufacturing efficiencies and higher losses from restructurings, plant closures and divestitures in 2023, partially offset by lower raw materials costs and energy costs as well as reduced freight, shipping and utilities expenses. Earnings in 2022 benefited from higher selling prices, strong demand in certain product categories and an increase in gains from a business divestiture and asset sales. K-51 Management’s Discussion and Analysis Manufacturing, Service and Retailing 2022 versus 2021 Revenues of the building products group increased $3.9 billion (15.7%) in 2022 and pre-tax earnings increased $1.4 billion (41.3%) compared to 2021. Pre-tax earnings as percentages of revenues were 16.6% in 2022 and 13.6% in 2021. During 2021 and much of 2022, our businesses experienced relatively strong customer demand and higher sales volumes. However, interest rates in the U.S. increased significantly during 2022, which contributed to slowing demand for new home construction in the fourth quarter. Clayton Homes’ revenues were approximately $12.7 billion in 2022, an increase of $2.2 billion (21.1%) over 2021. Revenues from home sales for the year increased $2.1 billion (25.1%) in 2022 to approximately $10.4 billion, primarily due to higher average selling prices. New home unit sales increased 6.2% in 2022, reflecting a 6.0% increase in factory-built manufactured home unit sales and a 7.1% increase in site-built home unit sales. However, unit sales in the fourth quarter of 2022 declined 3.9% from 2021, and our net order backlog declined significantly during 2022. Financial services revenues increased 4.7% in 2022 compared to 2021. Loan balances, net of allowances for credit losses, were approximately $21.3 billion as of December 31, 2022, an increase of approximately $2.5 billion from December 31, 2021. Actual and anticipated loan foreclosures rose during the fourth quarter of 2022. Pre-tax earnings of Clayton Homes were approximately $2.4 billion in 2022, an increase of $685 million (40.7%) compared to 2021. Earnings in 2022 reflected higher home sales, gross margin rates and net interest income. Aggregate revenues of the other building products businesses were approximately $16.2 billion in 2022, an increase of 11.8% versus 2021. The increase was primarily due to higher average selling prices, and to a lesser extent, from higher unit volumes in certain product lines and product mix changes. Significant cost inflation in 2021, that continued through 2022, largely drove the increases in selling prices. Pre-tax earnings of the other building products businesses were approximately $2.4 billion in 2022, an increase of 41.9% over 2021. Pre-tax earnings as a percentage of revenues were 15.0% in 2022, a 3.2 percentage point increase compared to 2021. Earnings in 2022 benefited from higher selling prices and strong demand in certain product categories, as well as an increase in gains from certain business divestitures and asset sales and reduced impairment and restructuring charges. The increase in earnings in 2022 also reflected the negative impact of severe winter storms in the first quarter of 2021, which reduced sales and increased production and other operating costs in 2021. Consumer products The consumer products group includes leisure vehicles (Forest River), several apparel and footwear operations (including Fruit of the Loom, Garan, H.H. Brown Shoe Group and Brooks Sports) and a manufacturer of high-performance alkaline batteries (Duracell). This group also includes custom picture framing products (Larson-Juhl), jewelry products (Richline) and beginning October 19, 2022, Jazwares, LLC (“Jazwares”), a global toy company acquired in connection with the Alleghany acquisition. 2023 versus 2022 Consumer products group revenues declined $1.5 billion (9.4%) in 2023 versus 2022. The decline reflected lower revenues at Forest River and our apparel and footwear operations, partially offset by the impact of the Jazwares acquisition, which contributed revenues of $1.3 billion in 2023 and $240 million in 2022. Forest River revenues declined 26.2% in 2023 compared to 2022, reflecting a 29.3% decline in unit sales and changes in sales mix. Forest River experienced strong recreational vehicle unit sales in 2021 and through the first half of 2022. Through most of 2023, sales of recreational vehicles declined significantly, attributable in part to the impact of rising interest rates, inflation and other macroeconomic conditions. The decline in recreational vehicle sales was partially offset by increased sales from Forest River’s bus and commercial business. Revenues of our apparel and footwear businesses declined $452 million (9.4%) in 2023 compared to 2022. The decline was primarily due to reduced apparel revenues, attributable to lower unit volumes, partially offset by higher average selling prices. Duracell’s revenues in 2023 were relatively flat versus 2022. K-52 Management’s Discussion and Analysis Manufacturing, Service and Retailing Pre-tax earnings of the consumer products group increased $46 million (3.0%) in 2023 compared to 2022. Pre-tax earnings in 2023 reflected the impact of the Jazwares acquisition and higher earnings from the apparel and footwear businesses, partially offset by lower earnings from Forest River and Duracell. Certain of our apparel and footwear businesses took actions in 2023 to reduce inventories and right-size operations. The earnings decline at Forest River was primarily due to the impact of lower sales volumes, while the decline at Duracell was primarily attributable to higher restructuring costs. 2022 versus 2021 Consumer products group revenues increased $481 million (3.1%) in 2022 versus 2021, reflecting an 8.0% increase from Forest River and the impact of the Jazwares acquisition, substantially offset by lower apparel and footwear and Duracell revenues (4.7% in the aggregate). In the fourth quarter of 2022, consumer products group revenues before the impact of the Jazwares acquisition declined 15.7%, driven by significant declines in recreational vehicle unit sales. The declines in apparel and footwear revenues were driven by lower volumes, as major retailers reduced orders in response to rising inventories. Duracell’s revenue decline was primarily due to lower volumes and unfavorable foreign currency translation effects of the stronger U.S. Dollar. Pre-tax earnings of the consumer products group declined $456 million (23.0%) in 2022 compared to 2021 and as a percentage of revenues in 2022 decreased 3.2 percentage points to 9.5%. The earnings decline reflected lower earnings from the apparel and footwear businesses (68.0%) and Duracell (30.6%), partially offset by higher earnings from Forest River (7.6%). Our apparel businesses were negatively affected in 2022 by low sales volumes, reduced manufacturing efficiencies and higher input costs, including raw materials, freight, labor and other operating costs. The reductions in sales volumes and supply chain issues in 2021 and 2022 also elevated inventories. We began taking measures to right-size our operations for the long-term and reduce product inventories to more appropriate levels. Duracell’s earnings in 2022 declined, primarily due to lower sales, cost inflation and foreign currency translation effects. Earnings from Forest River increased in 2022, primarily due to an increase in unit sales in the first half of the year and higher average selling prices, partly offset by higher materials costs. However, unit sales and earnings declined over the second half of the year compared to the elevated levels in the first half of 2022 and in 2021. Service and retailing A summary of revenues and pre-tax earnings of our service and retailing businesses follows (dollars in millions). [[GREPCENT_TABLE]] [["","","","","","","","","","","","Percentage change"],["","","2023","","","2022","","","2021","","","2023 vs 2022","","","2022 vs 2021"],["Revenues"],["Service","","$","20,588","","","$","19,006","","","$","15,872","","","","8.3","%","","","19.7","%"],["Retailing","","","19,408","","","","19,297","","","","18,960","","","","0.6","","","","1.8"],["McLane","","","52,607","","","","53,209","","","","49,450","","","","(1.1",")","","","7.6"],["","","$","92,603","","","$","91,512","","","$","84,282"],["Pre-tax earnings"],["Service","","$","2,995","","","$","3,047","","","$","2,672","","","","(1.7",")%","","","14.0","%"],["Retailing","","","1,726","","","","1,724","","","","1,809","","","","0.1","","","","(4.7",")"],["McLane","","","455","","","","271","","","","230","","","","67.9","","","","17.8"],["","","$","5,176","","","$","5,042","","","$","4,711"],["Pre-tax earnings as a percentage of revenues"],["Service","","","14.5","%","","","16.0","%","","","16.8","%"],["Retailing","","","8.9","%","","","8.9","%","","","9.5","%"],["McLane","","","0.9","%","","","0.5","%","","","0.5","%"]] [[/GREPCENT_TABLE]] K-53 Management’s Discussion and Analysis Manufacturing, Service and Retailing Service Our service group consists of several businesses. The largest of these businesses are NetJets and FlightSafety (aviation services), which offer shared ownership programs for general aviation aircraft and high technology training products and services to operators of aircraft, and TTI, a distributor of electronics components. Our other service businesses franchise and service a network of quick service restaurants (Dairy Queen), lease transportation equipment (XTRA) and furniture (CORT), provide third party logistics services that primarily serve the petroleum and chemical industries (Charter Brokerage), distribute electronic news, multimedia and regulatory filings (Business Wire) and operate a television station in Miami, Florida (WPLG). Beginning, October 19, 2022, this group includes IPS-Integrated Project Services, LLC (IPS), a provider of various facilities construction management services. 2023 versus 2022 Revenues of the service group increased $1.6 billion (8.3%) in 2023 compared to 2022. IPS produced revenues of $1.3 billion in 2023 and $358 million in 2022. Revenues from aviation services increased 11.5% in 2023 compared to 2022, primarily due to increases in the number of aircraft in shared aircraft ownership programs and a year-to-date increase in flight hours across NetJets’ various programs, as well as higher average rates. Revenues from TTI declined 2.7% in 2023 compared to 2022. Excluding the effects of business acquisitions in 2022 and 2023 and favorable foreign currency translation effects, revenues declined 5.2% in 2023 versus 2022. TTI experienced significant revenue growth in 2021 and much of 2022. New orders throughout 2023 slowed in several regions, particularly in the Asia-Pacific region, attributable to elevated customer inventory levels and increasing price competition. We currently expect these conditions will persist in 2024. Pre-tax earnings of the service group decreased $52 million (1.7%) in 2023 to $3.0 billion. Pre-tax earnings as a percentage of revenues were 14.5% in 2023, a decrease of 1.5 percentage points compared to 2022. The change in comparative earnings in 2023 reflected lower earnings from TTI and certain of our other service businesses, partially offset by increased earnings from aviation services and the impact of the IPS acquisition. Earnings from TTI declined 17.3%, attributable to reduced sales and gross margin rates and higher operating expenses, partly offset by the impact of foreign currency exchange gains in 2023 compared to losses in 2022. The increase in earnings from aviation services was primarily attributable to a 14.4% increase in average aircraft in the NetJets’ programs and higher rates. 2022 versus 2021 Service group revenues increased $3.1 billion (19.7%) in 2022 compared to 2021, primarily attributable to revenue increases from TTI and aviation services, as well as the impact of the IPS acquisition. Revenues from TTI increased 17.4% in 2022 versus 2021. However, in the third quarter of 2022, new orders began to slow, attributable in part to elevated inventory levels within the supply chain. Revenues from aviation services increased 18.2% in 2022 compared to 2021. The revenue increase reflected increases in training hours (11%), customer flight hours (9%) and fuel surcharges to customers due to the increase in flight hours and fuel prices. The impact of these increases were partially offset by changes in sales mix. Pre-tax earnings of our service group increased $375 million (14.0%) in 2022 to $3.0 billion. Pre-tax earnings as a percentage of revenues were 16.0% in 2022, a decrease of 0.8 percentage points compared to 2021. The earnings increase in 2022 was attributable to TTI (19.4%) and aviation services (3.4%), as well as increased earnings from several of our smaller service businesses. The increase from TTI was primarily attributable to the increase in sales and higher average gross margin rates, partially offset by unfavorable foreign currency effects in 2022 and a favorable legal settlement in 2021. The earnings increase from aviation services was primarily attributable to improved product sales margins, increased training hours and lower restructuring costs at FlightSafety. Earnings from our smaller service businesses increased $106 million (19.3%) over 2021, reflecting a combination of higher revenues and operating cost leverage. K-54 Management’s Discussion and Analysis Manufacturing, Service and Retailing Retailing Our largest retailing business is Berkshire Hathaway Automotive, Inc. (“BHA”), which represented 67% of our combined retailing revenue in 2023. BHA consists of over 80 auto dealerships that sell new and pre-owned automobiles and offer repair services and related products. BHA also offers and insures vehicle service contracts and related insurance products. Our retailing businesses also include four home furnishings businesses (Nebraska Furniture Mart, R.C. Willey, Star Furniture and Jordan’s), which sell furniture, appliances, flooring and electronics. The home furnishings group represented 18% of the combined retailing revenues in 2023. Other retailing businesses include three jewelry businesses (Borsheims, Helzberg and Ben Bridge), See’s Candies (confectionary products), Pampered Chef (high quality kitchen tools), Oriental Trading Company (party supplies, school supplies and toys and novelties) and Detlev Louis Motorrad (“Louis”), a retailer of motorcycle accessories based in Germany. 2023 versus 2022 Retailing group revenues increased $111 million (0.6%) in 2023 compared to 2022, reflecting an increase at BHA, partially offset by lower revenues from our other retailers. BHA’s revenues increased 3.9% in 2023 compared to 2022. Revenues from new vehicle sales increased 12.6% in 2023 compared to 2022, while revenues from pre-owned retail vehicle sales declined 9.4%. Retail unit sales increased 2.7%, reflecting an 11.7% increase in new vehicles sold and a 4.7% decrease in pre-owned vehicles sold. Although new vehicle inventory levels remain well below historical levels, vehicle supply continues to gradually rise. Revenues from BHA’s parts/service/repair operations increased 6.6% in 2023 versus 2022. Other retailing revenues in the aggregate declined 5.6% in 2023 versus 2022, due primarily to an 8.6% decline in revenues at our home furnishings businesses. Retailing group pre-tax earnings were $1.7 billion in 2023, unchanged from 2022. BHA’s pre-tax earnings increased 17.7%, primarily due to earnings increases from the parts/service/repair and finance/service contract operations, as well as from higher investment income and lower operating and liability remeasurement expenses, partially offset by lower vehicle gross profit margin rates and higher floor plan interest expense. BHA’s comparative vehicle gross profit margin rates peaked in mid-2022 due to supply chain disruptions and have since declined. Aggregate pre-tax earnings for the remainder of our retailing group declined $168 million (21.8%) in 2023 compared to 2022, primarily due to a 28.3% decrease in home furnishings businesses earnings and the impact of a gain in 2022 from the divestiture of certain jewelry stores. 2022 versus 2021 Retailing group revenues increased $337 million (1.8%) in 2022 compared to 2021, reflecting an increase at BHA, partially offset by combined lower revenues from our other retailers. BHA’s revenues increased 6.1% in 2022 compared to 2021. Revenues from new and used retail vehicle sales increased 5.9% compared to 2021, attributable to higher average vehicle transaction prices, partly offset by a 4.5% decline in total retail units sold. New vehicle unit sales in 2022 were constrained by relatively low, but gradually rising, new vehicle supplies. Revenues from BHA’s parts/service/repair operations increased 11.1% versus 2021. Revenues of the home furnishings group declined 2.6%, while revenues of all other retailers declined 8.9%, primarily due to lower sales at Pampered Chef. Pre-tax earnings of the retailing group decreased $85 million (4.7%) in 2022 compared to 2021 and the pre-tax margin rate decreased 0.6 percentage points to 8.9%. BHA’s pre-tax earnings increased 18.4%, primarily due to increases in vehicle gross profit margins attributable to low available inventory. BHA’s vehicle gross profit margin rates accelerated during the second half of 2021, peaked in the first half of 2022 and declined over the remainder of the year. Aggregate pre-tax earnings for the remainder of the retailing group decreased $233 million (23.2%) in 2022 compared to 2021, primarily due to reduced earnings from the home furnishings group, See’s Candies and Pampered Chef. K-55 Management’s Discussion and Analysis Manufacturing, Service and Retailing McLane McLane Company, Inc. (“McLane”) operates a wholesale distribution business that provides grocery and non-food consumer products to retailers and convenience stores (“grocery”) and to restaurants (“foodservice”). McLane also operates businesses that are wholesale distributors of distilled spirits, wine and beer (“beverage”). The grocery and foodservice businesses generate high sales and very low profit margins. These businesses have several significant customers, including Walmart, 7-Eleven, Yum! Brands and others. Grocery sales comprised 62% of McLane’s consolidated sales in 2023 with foodservice comprising most of the remainder. A curtailment of purchasing by any of its significant customers could have an adverse impact on periodic revenues and earnings. 2023 versus 2022 Revenues were $52.6 billion in 2023, a decline of $602 million (1.1%) compared to 2022. Revenues from the grocery and foodservice businesses declined 0.8% and 2.2%, respectively, while revenues from the beverage business increased 1.9% compared to 2022. Revenues of the grocery and the foodservice businesses were negatively affected in 2023 by lower unit volumes. Pre-tax earnings increased $184 million (67.9%) in 2023 compared to 2022. The increase reflected a slight increase in the overall gross sales margin rate, increased other income and lower fuel expenses, partly offset by higher personnel expenses. 2022 versus 2021 Revenues were $53.2 billion in 2022, an increase of $3.8 billion (7.6%) compared to 2021. Revenues from the grocery business increased 4.4%, while revenues from the foodservice and beverage businesses increased 14.1% and 6.0%, respectively. Pre-tax earnings increased $41 million (17.8%) in 2022 compared to 2021. The increase reflected slightly higher gross margin rates in the grocery and foodservice businesses, partly offset by higher personnel costs, fuel expense and insurance costs. McLane’s grocery and foodservice operating results were adversely affected by supply chain constraints, including the effects of labor and truck driver shortages, high fuel costs and high inventory costs. Non-Controlled Businesses After-tax earnings of our non-controlled businesses include our proportionate share of earnings attributable to our investments in Kraft Heinz, Occidental Petroleum (“Occidental”), PTC (through January 31, 2023) and Berkadia. After-tax equity earnings attributable to these businesses increased $222 million in 2023 compared to 2022, primarily due to increased earnings from Occidental. We adopted the equity method of accounting for our investment in Occidental common stock on August 4, 2022. Equity method after-tax earnings increased $724 million in 2022 versus 2021, primarily due to higher earnings from Kraft Heinz and PTC and from the inclusion of Occidental in 2022. Our after-tax earnings from Kraft Heinz were $790 million in 2023, $550 million in 2022 and $317 million in 2021, which included our after-tax share of goodwill and other intangible asset impairment charges recorded by Kraft Heinz of $126 million in 2023, $157 million in 2022 and $259 million in 2021. Occidental’s financial information is not available in time for concurrent reporting in our Consolidated Financial Statements. Therefore, we report the equity method effects for Occidental on a one-quarter lag. Our after-tax earnings from Occidental were $851 million in 2023 and $258 million in 2022. As of January 31, 2023, we discontinued using the equity method for our pre-existing 38.6% interest in PTC upon acquiring a controlling interest in PTC. We began consolidating PTC’s financial statements in our Consolidated Financial Statements on February 1, 2023. See Notes 2 and 5 to the Consolidated Financial Statements. Our after-tax equity earnings from PTC decreased $559 million in 2023 compared to 2022 and increased $267 million in 2022 compared to 2021. K-56 Management’s Discussion and Analysis Investment and Derivative Contract Gains (Losses) A summary of investment and derivative contract gains (losses) follows (dollars in millions). [[GREPCENT_TABLE]] [["","","2023","","","2022","","","2021"],["Investment gains (losses)","","$","74,855","","","$","(67,623",")","","$","77,576"],["Derivative contract gains (losses)","","","\u2014","","","","(276",")","","","966"],["Gains (losses) before income taxes and noncontrolling interests","","","74,855","","","","(67,899",")","","","78,542"],["Income taxes and noncontrolling interests","","","15,982","","","","(14,287",")","","","16,202"],["Net earnings (loss)","","$","58,873","","","$","(53,612",")","","$","62,340"],["Effective income tax rate","","","21.3","%","","","20.9","%","","","20.4","%"]] [[/GREPCENT_TABLE]] Unrealized gains and losses arising from changes in market prices of our investments in equity securities are included in our reported earnings, which significantly increases the volatility of our periodic net earnings due to the magnitude of our equity securities portfolio and the inherent volatility of equity securities prices. Unrealized gains and losses also include the effects of changes in foreign currency exchange rates on investments in non-U.S. issuers that are held by our U.S.-based subsidiaries. Pre-tax investment gains and losses included net unrealized gains of approximately $69.1 billion in 2023, losses of approximately $63.1 billion in 2022 and gains of approximately $76.4 billion in 2021 attributable to changes in market prices of equity securities we held at the end of each year. We also recorded pre-tax gains and losses from market value changes during each year on equity securities sold during such year, including gains of $2.7 billion in 2023, losses of $3.9 billion in 2022 and gains of $1.0 billion in 2021. Taxable investment gains on equity securities sold, which is generally the difference between sales proceeds and the original cost basis of the securities sold, were $5.0 billion in 2023, $769 million in 2022 and $3.6 billion in 2021. Investment gains in 2023 included a non-cash pre-tax gain of approximately $3.0 billion related to the remeasurement of our pre-existing interest in PTC to fair value through the application of acquisition accounting upon attaining control of PTC for financial reporting purposes. We believe that investment gains and losses, whether realized from sales or unrealized from changes in market prices, are often meaningless in terms of understanding our reported consolidated earnings or evaluating our periodic economic performance. We continue to believe the investment gains and losses recorded in earnings in any given period has little analytical or predictive value. Derivative contract gains and losses in 2022 and 2021 pertained to our equity index put option contract liabilities. Substantially all of our contracts are now expired and our exposure to loss in the future is insignificant. Other A summary of after-tax other earnings follows (in millions). [[GREPCENT_TABLE]] [["","","2023","","","2022","","","2021"],["Acquisition accounting expenses","","$","(693",")","","$","(681",")","","$","(690",")"],["Corporate interest expense, before foreign currency effects","","","(226",")","","","(269",")","","","(305",")"],["Foreign currency exchange rate gains on Berkshire and BHFC non-U.S. Dollar senior notes","","","211","","","","1,263","","","","955"],["Other earnings","","","533","","","","196","","","","474"],["","","$","(175",")","","$","509","","","$","434"]] [[/GREPCENT_TABLE]] After-tax acquisition accounting expenses include charges arising from the application of the acquisition method in connection with certain of Berkshire’s business acquisitions. Such charges arise primarily from the amortization of intangible assets recorded in connection with those business acquisitions. Foreign currency exchange rate gains pertain to Berkshire’s and BHFC’s Euro, Great Britain Pound and Japanese Yen denominated debt. Changes in foreign currency exchange rates produce unrealized gains and losses from the periodic revaluation of these liabilities into U.S. Dollars. In each year, we recorded foreign currency exchange rate gains on these debt issues due to strengthening of the U.S. Dollar, which reduced the U.S Dollar carrying value of the debt. The gains and losses recorded in any given period can be significant due to the magnitude of the borrowings and the inherent volatility in foreign currency exchange rates. Other earnings consist primarily of Berkshire parent company investment income, intercompany interest income where the interest expense is included in earnings of the operating businesses, corporate expenses and unallocated income taxes. Investment income increased by $483 million in 2023 compared to 2022, primarily due to higher interest rates in 2023. K-57 Management’s Discussion and Analysis Financial Condition Our Consolidated Balance Sheet continues to reflect significant liquidity and a very strong capital base. Berkshire’s shareholders’ equity at December 31, 2023 was $561.3 billion, an increase of $87.8 billion since December 31, 2022. Net earnings attributable to Berkshire shareholders were $96.2 billion and included after-tax investment gains of approximately $58.9 billion. Over each of the last three years, investment gains and losses from changes in the market prices of our investments in equity securities produced significant volatility in our earnings. Berkshire’s common stock repurchase program, as amended, permits Berkshire to repurchase its Class A and Class B shares at prices below Berkshire’s intrinsic value, as conservatively determined by Warren Buffett, Berkshire’s Chairman of the Board. The program does not specify a maximum number of shares to be repurchased and does not require any specified repurchase amount. The program is expected to continue indefinitely. We will not repurchase our stock if it reduces the total amount of our consolidated cash, cash equivalents and U.S. Treasury Bills holdings to below $30 billion. Financial strength and redundant liquidity will always be of paramount importance at Berkshire. Berkshire paid $9.2 billion in 2023 to repurchase shares of its Class A and B common stock. At December 31, 2023, our insurance and other businesses held cash, cash equivalents and U.S. Treasury Bills of $163.3 billion, which included $133.4 billion invested in U.S. Treasury Bills. Investments in equity and fixed maturity securities (excluding our investments in Kraft Heinz and Occidental common stock) were $377.6 billion. During 2023, we paid cash of $16.5 billion to acquire equity securities and we received proceeds of $40.6 billion from sales of equity securities. On January 31, 2023, we acquired an additional 41.4% interest in PTC for approximately $8.2 billion. On January 16, 2024, we acquired the remaining 20% ownership interest in PTC held by non-controlling shareholders for $2.6 billion. Our consolidated borrowings at December 31, 2023 were $128.3 billion, of which over 95% were by the Berkshire parent company, BHFC, and by BNSF, BHE, PTC and their subsidiaries. During 2023, we issued term debt of approximately $7.8 billion and paid approximately $11.3 billion of maturing term debt. Expected principal and interest payments related to our consolidated borrowings in each of the next five years are (in billions): $18.7 in 2024; $11.6 in 2025; $10.3 in 2026; $8.7 in 2027; and $10.4 in 2028. Berkshire parent company debt outstanding at December 31, 2023 was $18.8 billion, a decrease of $2.6 billion from December 31, 2022. In 2023, Berkshire issued an aggregate ¥286.4 billion (approximately $2.0 billion) of senior notes and repaid approximately $4.3 billion of maturing senior notes. The carrying value of Berkshire parent company debt decreased $371 million in 2023 from changes in foreign currency exchange rates on its non-U.S. Dollar denominated debt. Senior note borrowings of BHFC, a wholly-owned financing subsidiary, were approximately $18.0 billion at December 31, 2023, substantially unchanged from December 31, 2022. BHFC’s borrowings are used to fund a portion of loans originated and acquired by Clayton Homes and equipment held for lease by our railcar leasing business. Berkshire guarantees BHFC’s senior notes for the full and timely payment of principal and interest. BNSF’s outstanding debt was $23.5 billion as of December 31, 2023, substantially unchanged from December 31, 2022. During 2023, BNSF issued $1.6 billion of 5.2% debentures due in 2054 and repaid approximately $1.6 billion of term debt. In 2023, BHE subsidiaries issued $4.2 billion of term debt with a weighted average interest rate of 5.7% and maturity dates ranging from 2033 to 2055 and repaid approximately $3.7 billion of term debt. In 2024, BHE subsidiaries issued $5.1 billion of term debt with a weighted average interest rate of 5.4% and maturity dates ranging from 2029 to 2055 and repaid short term borrowings of approximately $2.8 billion. Borrowings of PTC were $5.8 billion at December 31, 2023, relatively unchanged since January 31, 2023. Berkshire does not guarantee the repayment of debt issued by BNSF, BHE, PTC or any of their subsidiaries or affiliates. In each of the past three years, our diverse group of businesses generated net operating cash flows between $37 billion and $49 billion. Our consolidated capital expenditures for property, plant and equipment and equipment held for lease were $19.4 billion in 2023, which included capital expenditures by BNSF and BHE of $13.1 billion. BNSF and BHE maintain very large investments in capital assets (property, plant and equipment) and regularly make significant capital expenditures in the normal course of business. We forecast capital expenditures for BHE and BNSF in 2024 of approximately $14.3 billion. On September 1, 2023, a BHE subsidiary acquired an additional 50% limited partner interest in its Cove Point LNG, LP subsidiary for $3.3 billion. K-58 Management’s Discussion and Analysis Contractual Obligations We are party to other contracts associated with ongoing business activities, which will result in cash payments to counterparties in future periods. Our annual debt maturities for the next five years are summarized in Note 19 to the Consolidated Financial Statements. We also currently expect to pay interest on our debt of between $4 billion and $5 billion per annum over the next five years. Certain other obligations are included in our Consolidated Balance Sheets, such as operating lease liabilities and shared aircraft repurchase liabilities of NetJets. Estimated payments of these liabilities in each of the next five years are (in billions): $1.9 in 2024; $1.7 in 2025; $1.5 in 2026; $1.8 in 2027; and $1.9 in 2028. We are also obligated to pay claims arising from our property and casualty insurance companies. Such liabilities, including amounts from retroactive reinsurance, were approximately $146 billion at December 31, 2023. We currently forecast claim payments in 2024 of approximately $37 billion with respect to claims occurring prior to 2024. However, the timing and amount of the payments under insurance and reinsurance contracts are contingent upon the outcome of future events and can be highly uncertain. Actual payments will likely vary, perhaps materially, from the forecasted payments. We anticipate that these payments will be funded by operating cash flows. Other obligations pertaining to the acquisition of goods or services in the future, such as certain purchase obligations, are not currently reflected in the Consolidated Financial Statements and will be recognized in future periods as the goods are delivered or services are provided. As of December 31, 2023, the largest categories of our long-term contractual obligations primarily related to fuel, capacity, transmission and maintenance contracts and capital expenditure commitments of BHE and BNSF, aircraft purchase commitments of NetJets and certain materials purchase commitments. We currently estimate future payments associated with these contracts over the next five years will approximate $22 billion, including $10 billion in 2024. Critical Accounting Estimates Certain accounting policies require us to make estimates and judgments in determining the amounts reflected in our Consolidated Financial Statements. Such estimates and judgments necessarily involve varying and possibly significant degrees of uncertainty. Accordingly, certain amounts currently recorded in our Consolidated Financial Statements will likely be adjusted in the future based on new available information and changes in other facts and circumstances. A discussion of our principal accounting policies that required the application of significant judgments as of December 31, 2023 follows. Property and casualty insurance unpaid losses We record liabilities for unpaid losses and loss adjustment expenses (also referred to as “gross unpaid losses” or “claim liabilities”) based upon estimates of the ultimate amounts payable for loss events occurring on or before the balance sheet date. The timing and amount of ultimate loss payments are contingent upon, among other things, the timing of claim reporting from insureds and ceding companies and the final determination of the loss amount through the loss adjustment and settlement process. As of the balance sheet date, recorded claim liabilities include estimates for reported claims and for incurred-but-not-reported (“IBNR”) claims. The period between the loss occurrence date and loss settlement date is the “claim-tail.” Property claims typically have relatively short claim-tails, while casualty claims usually have longer claim-tails, occasionally extending for decades. Casualty claims may be more susceptible to litigation and the impact of changing contract interpretations. The legal environment and judicial process further contribute to extending claim-tails. Our consolidated claim liabilities, including liabilities from retroactive reinsurance contracts, as of December 31, 2023 were approximately $146 billion, of which 76% related to GEICO and the Berkshire Hathaway Reinsurance Group. Additional information regarding significant uncertainties inherent in the processes and techniques for estimating unpaid losses of these businesses follows. K-59 Management’s Discussion and Analysis Critical Accounting Estimates Property and casualty insurance unpaid losses GEICO GEICO predominantly writes private passenger automobile insurance. As of December 31, 2023, GEICO’s gross unpaid losses were $24.4 billion and claim liabilities, net of reinsurance recoverable, were $23.4 billion. GEICO’s claim reserving methodologies produce liability estimates based upon the individual claims. The key assumptions affecting our liability estimates include projections of ultimate claim counts (“frequency”) and average loss per claim (“severity”). We utilize a combination of several actuarial estimation methods, including Bornhuetter-Ferguson and chain-ladder methodologies. Claim liability estimates for liability coverages (such as bodily injury (“BI”), uninsured motorists, and personal injury protection) are more uncertain due to the longer claim-tails, so we establish additional case development estimates. As of December 31, 2023, case development liabilities averaged approximately 28% of reported reserves. We select case development factors through analysis of the overall adequacy of historical case liabilities. We test the adequacy of the aggregate claim liabilities using one or more actuarial projections based on claim closure models and paid and incurred loss triangles. Each type of projection analyzes loss occurrence data for claims occurring in a given period and projects the ultimate cost. Our aggregate claim liability estimates recorded at the end of 2022 were reduced by $1.5 billion during 2023, which produced a corresponding increase to pre-tax earnings. The assumptions used to estimate liabilities at December 31, 2023 reflect the most recent frequency and severity estimates. Future development of recorded liabilities will depend on whether actual frequency and severity of claims are more or less than anticipated. With respect to liabilities for BI claims, we believe it is reasonably possible that average claims severities will change by at least one percentage point from the projected severities used in establishing the recorded liabilities at December 31, 2023. We estimate that a one percentage point increase or decrease in BI severities would produce a $210 million increase or decrease in recorded liabilities, with a corresponding decrease or increase in pre-tax earnings. Many of the economic forces that would likely cause BI severity to differ from expectations would likely also cause severities for other injury coverages to differ in the same direction. Berkshire Hathaway Reinsurance Group BHRG’s liabilities for unpaid losses and loss adjustment expenses derive primarily from reinsurance contracts issued through the NICO, General Re and TransRe Groups. A summary of BHRG’s property and casualty unpaid losses and loss adjustment expenses, other than retroactive reinsurance losses and loss adjustment expenses, as of December 31, 2023 follows (in millions). [[GREPCENT_TABLE]] [["","Property","","","Casualty","","","Total"],["Reported case liabilities","$","8,159","","","$","11,455","","","$","19,614"],["IBNR liabilities","","9,105","","","","22,769","","","","31,874"],["Gross unpaid losses and loss adjustment expenses","","17,264","","","","34,224","","","","51,488"],["Reinsurance recoverable","","689","","","","1,481","","","","2,170"],["Net unpaid losses and loss adjustment expenses","$","16,575","","","$","32,743","","","$","49,318"]] [[/GREPCENT_TABLE]] Gross unpaid losses and loss adjustment expenses consist primarily of traditional property and casualty coverages written under excess-of-loss and quota-share treaties. Under certain contracts, coverage can apply to multiple lines of business written and the ceding company may not report loss data by such lines consistently, if at all. In those instances, we judgmentally allocate losses to property and casualty coverages based on internal estimates. The nature, extent, timing and perceived reliability of loss information received from ceding companies varies widely depending on the type of coverage and the contractual reporting terms. Reinsurance contract terms, conditions and coverages also tend to lack standardization and may evolve more rapidly than primary insurance policies. K-60 Management’s Discussion and Analysis Critical Accounting Estimates Property and casualty insurance unpaid losses The loss information provided under many facultative (individual risk) or per occurrence excess contracts may be comparable to the information received under a primary insurance contract. However, loss information with respect to aggregate excess-of-loss and quota-share contracts is often in a summary form rather than on an individual claim basis. Loss data includes currently recoverable paid losses, as well as case loss estimates. Ceding companies infrequently provide reliable IBNR loss estimates. Loss reporting to reinsurers is typically slower than primary insurers. In the U.S., client reporting is generally required at quarterly intervals ranging from 30 to 90 days after the end of the quarterly period, while outside of the U.S., reinsurance reporting practices may vary further, with some clients reporting annually ranging from 90 to 180 days after the end of the annual period. To the extent that reinsurers assume and cede underlying risks from other reinsurers, further delays in claims reporting may occur. The relative impact of reporting delays on the reinsurer may vary depending on the type of coverage, contractual reporting terms, the magnitude of the claim relative to the attachment point of the reinsurance coverage and other reasons. As reinsurers, the premium and loss data we receive is at least one level removed from the underlying claimant, so there is a risk that the loss data reported is incomplete, inaccurate or the claim is outside the coverage terms. We maintain internal procedures to determine that the information is complete and in compliance with the contract terms. Generally, our reinsurance contracts permit us to access the ceding company’s records with respect to the subject business, thus providing the ability to audit the reported information. In the normal course of business, disputes occasionally arise concerning whether claims are covered by our reinsurance policies. We resolve most coverage disputes through negotiation with the client. If disputes cannot be resolved, our contracts generally provide arbitration or alternative dispute resolution processes. We believe there are no coverage disputes at this time for which an adverse resolution would likely have a material impact on our consolidated results of operations or financial condition. Establishing claim liability estimates for reinsurance requires evaluation of loss information received from our clients. We generally rely on the ceding companies’ reported case loss estimates. We independently evaluate certain reported case losses and if appropriate, we use our own case liability estimate. For instance, as of December 31, 2023, our case loss estimates exceeded ceding company estimates by approximately $575 million for certain legacy workers’ compensation claims occurring over 10 years ago. We also periodically conduct detailed reviews of individual client claims, which may cause us to adjust our case estimates. Although liabilities for losses are initially determined based on pricing and underwriting analysis, we use a variety of actuarial methodologies that place reliance on the extrapolation of historical data, loss development patterns, industry data and other benchmarks. The estimate of the IBNR liabilities also requires judgment by actuaries and management to reflect the impact of additional factors like change in business mix, volume, claim reporting and handling practices, inflation, social and legal environment and the terms and conditions of the contracts. The methodologies generally fall into or are hybrids of one or more of the following categories: Paid and incurred loss development methods consider expected case loss emergence and development patterns, together with expected loss ratios by year. Factors affecting our loss development analysis include, but are not limited to, changes in the following: client claims reporting and settlement practices, the frequency of client company claim reviews, policy terms and coverage (such as loss retention levels and occurrence and aggregate policy limits), loss trends and legal trends that result in unanticipated losses. Collectively, these factors influence our selections of expected case loss emergence patterns. Incurred and paid loss Bornhuetter-Ferguson methods consider actual paid and incurred losses and expected reporting patterns of paid and incurred losses, taking the initial expected ultimate losses into account to determine an estimate of the expected unpaid or unreported losses. K-61 Management’s Discussion and Analysis Critical Accounting Estimates Property and casualty insurance unpaid losses Frequency and severity methods commonly focus on a review of the number of anticipated claims and the anticipated claims severity and may also rely on development patterns to derive such estimates. However, our processes and techniques for estimating liabilities in such analyses generally rely more on a per-policy assessment of the ultimate cost associated with the individual loss rather than with an analysis of historical development patterns of past losses. Additional analysis – In some cases we have established reinsurance claim liabilities on a contract-by-contract basis, determined from case loss estimates reported by the ceding company and IBNR liabilities that are primarily a function of an anticipated loss ratio for the contract and the reported case loss estimate. Liabilities are adjusted upward or downward over time to reflect case losses reported versus expected case losses, which we use to form revised judgment on the adequacy of the expected loss ratio and the level of IBNR liabilities required for unreported claims. Anticipated loss ratios are also revised to include estimates of known major catastrophe events. Our claim liability estimation process for short-tail lines, primarily property exposures, utilizes a combination of the paid and incurred loss development methods and the incurred and paid loss Bornhuetter-Ferguson methods. Certain property catastrophe, individual risk and aviation excess-of-loss contracts tend to generate low frequency/high severity losses. Our processes and techniques for estimating liabilities under such contracts generally rely more on a per contract assessment of the ultimate cost associated with the individual loss event rather than with an analysis of the historical development patterns of past losses. For our long-tail lines, primarily casualty exposures, we may rely on different methods depending on the maturity of the business, with estimates for the most recent years being based on priced loss expectations and more mature years reflecting the paid or incurred development pattern indications. In 2023, workers’ compensation claims reported losses were less than expected. As a result, we reduced estimated ultimate losses for prior years’ loss events by $116 million. We estimate that increases of ten percent in the tail of the expected loss emergence pattern and in the expected loss ratios would produce a net increase of approximately $1.0 billion in IBNR liabilities, producing a corresponding decrease in pre-tax earnings. We believe it is reasonably possible for these assumptions to increase at these rates. For other casualty losses, other than asbestos and environmental, we reduced estimated ultimate liabilities for prior years’ events by approximately $225 million in 2023. For certain significant casualty and general liability portfolios, we estimate that increases of five percent in the claim-tails of the expected loss emergence patterns and in the expected loss ratios could produce a net increase in our nominal IBNR liabilities and a corresponding reduction in pre-tax earnings of approximately $2 billion, although outcomes of greater than or less than $2 billion are possible. The change in estimated ultimate liabilities for asbestos and environmental claims, excluding amounts assumed under retroactive reinsurance contracts was not significant in 2023. Net liabilities for such claims were approximately $2.0 billion at December 31, 2023. Loss estimations for these exposures are difficult to determine due to the changing legal environment and increases may be required in the future if new exposures or claimants are identified, new claims are reported or new theories of liability emerge. Retroactive reinsurance Our retroactive reinsurance contracts cover loss events occurring before the contract inception dates. Claim liabilities associated with our retroactive reinsurance contracts predominately pertain to casualty or liability exposures. We expect the claim-tails will be very long. At December 31, 2023, gross unpaid losses were $34.6 billion and deferred charges were $9.5 billion. Our contracts are generally subject to maximum limits of indemnification and, as such, we currently expect that maximum remaining gross losses payable under our retroactive policies will not exceed $50 billion. Absent significant judicial or legislative changes affecting asbestos, environmental or mass tort exposures, we also currently believe it unlikely that losses will develop upward to the maximum losses payable or downward by more than 15% of our current estimated gross liability. K-62 Management’s Discussion and Analysis Critical Accounting Estimates Property and casualty insurance unpaid losses We establish liability estimates by individual contract, considering exposure and development trends, historical aggregate loss payment patterns and project expected ultimate losses under various scenarios. We apply judgmental probability factors to these scenarios to determine an expected outcome. We also monitor subsequent loss payment activity and ceding company reports and other available information. We re-estimate ultimate losses when significant events or significant deviations from expectations are revealed. Certain of our retroactive reinsurance contracts include asbestos, environmental and other mass tort claims. Our estimated liabilities for asbestos and environmental exposures were approximately $12.2 billion at December 31, 2023. We do not consistently receive reliable detailed underlying claims data from all ceding companies, particularly with respect to multi-line or aggregate excess-of-loss policies. When possible, we conduct a detailed analysis of the underlying loss data to make an estimate of ultimate reinsured losses. When detailed loss information is unavailable, we may apply recent industry trends and projections to aggregate client data. Judgments in these areas necessarily consider the stability of the legal and regulatory environment under which we expect claims will be adjudicated. Legal reform and legislation could also have a significant impact on our ultimate liabilities. Deferred charges for retroactive reinsurance contracts, which at contract inception, represents the excess of the estimated ultimate liability for unpaid losses over premiums received. Deferred charges are subsequently charged to pre-tax earnings in future periods based on the expected timing and amount of loss payments. We adjust deferred charge balances for the impact of changes in the expected timing and ultimate amount of claim payments. Based on the contracts in effect as of December 31, 2023, we estimate that amortization expense in 2024 will approximate $900 million. We increased estimated ultimate liabilities for prior years’ retroactive reinsurance contracts by $1.1 billion in the fourth quarter of 2023, primarily for asbestos, environmental and other casualty exposures. This increase, net of related changes in unamortized deferred charges, produced an incremental pre-tax underwriting loss of approximately $650 million. Other Critical Accounting Estimates Our Consolidated Balance Sheet at December 31, 2023 includes goodwill of acquired businesses of $84.6 billion and indefinite-lived other intangible assets of $18.9 billion. We evaluate these assets for impairment annually in the fourth quarter and on an interim basis if the facts and circumstances lead us to believe that more likely than not there has been an impairment. Goodwill and indefinite-lived intangible asset impairment reviews include determining the estimated fair values of our reporting units and of indefinite-lived intangible assets. Several methods may be used to estimate fair values, including market quotations, multiples of earnings and other valuation techniques. We primarily use discounted projected future earnings or cash flow methods in determining fair values. The key assumptions and inputs used in such determinations may include forecasting revenues and expenses, cash flows and capital expenditures, as well as an appropriate discount rate and other inputs. Significant judgment by management is required in estimating the fair value of a reporting unit and in performing impairment reviews. Due to the inherent subjectivity and uncertainty in forecasting future cash flows and earnings over long periods of time, actual results may differ materially from the forecasts. If the carrying value of a reporting unit exceeds the estimated fair value of the reporting unit, then the excess, limited to the carrying amount of goodwill, is charged to earnings as an impairment loss. If the carrying value of the indefinite-lived intangible asset exceeds fair value, the excess is charged to earnings as an impairment loss. As of December 31, 2023, we concluded it was more likely than not that goodwill recorded in our Consolidated Balance Sheet was not impaired. The fair value estimates of reporting units are and will likely be significantly affected by assumptions on the long-term effects of the COVID-19 pandemic on the reporting units businesses, as well as other assumptions concerning the long-term economic performance of the reporting units, which we cannot reliably predict. Consequently, any fair value estimates can be subject to wide variations. K-63 Management’s Discussion and Analysis Critical Accounting Estimates Other Critical Accounting Estimates In connection with the annual goodwill impairment review conducted in the fourth quarter of 2023, the estimated fair values of nine reporting units did not exceed our carrying values by at least 20%. These reporting units included Precision Castparts Corp. (“PCC”) and three reporting units acquired in late 2022 and early 2023. Our estimated fair value of PCC was approximately $32.6 billion, exceeding our carrying value of approximately $29.7 billion by 10%. Our carrying value of PCC included goodwill of approximately $7.5 billion. The three reporting units acquired in late 2022 and early 2023 included PTC, Jazwares and IPS. The fair values of these entities at December 31, 2023 totaled approximately $21.5 billion, which exceeded our carrying values by 1.5%. Goodwill associated with these reporting units was $8.5 billion. The remaining five other reporting units had an aggregate estimated fair value of approximately $4.4 billion, which exceeded our aggregate carrying value of approximately 10%. The carrying value of these units included goodwill of approximately $1.3 billion. Market Risk Disclosures Our Consolidated Balance Sheets include substantial amounts of assets and liabilities whose fair values are subject to market risks. Our significant market risks are primarily associated with equity prices, interest rates, foreign currency exchange rates and commodity prices. The fair values of our investment portfolios remain subject to considerable volatility. The following sections address the significant market risks associated with our business activities. Equity Price Risk Investments in equity securities represent the most significant portion of our consolidated investment portfolio. Strategically, we strive to invest in businesses that possess excellent economics and able and honest management, and we prefer to invest a meaningful amount in each company. Historically, equity investments have been concentrated in relatively few issuers. At December 31, 2023, approximately 79% of the total fair value of equity securities was concentrated in five companies. We often hold our equity securities for long periods and short-term price volatility has occurred in the past and will occur in the future. We also strive to maintain significant levels of shareholder capital and ample liquidity to provide a margin of safety against short-term price volatility. The following table summarizes our investments in equity securities, other than our investments in Kraft Heinz and Occidental common stocks, and the estimated effects of a hypothetical 30% increase and a 30% decrease in market prices as of those dates. The selected 30% hypothetical increase and decrease does not reflect the best or worst case scenario. Indeed, results from declines could be far worse due both to the nature of equity markets and the aforementioned concentrations existing in our equity investment portfolio. Dollar amounts are in millions. [[GREPCENT_TABLE]] [["","","Fair Value","","","Hypothetical Price Change","","Estimated Fair Value After Hypothetical Change in Prices","","","Estimated Increase (Decrease) in Net Earnings (1)"],["December 31, 2023"],["Investments in equity securities","","$","353,842","","","30% increase","","$","457,993","","","$","82,281"],["","","","","","30% decrease","","","249,885","","","","(82,129",")"],["December 31, 2022"],["Investments in equity securities","","$","308,793","","","30% increase","","$","399,087","","","$","71,344"],["","","","","","30% decrease","","","218,688","","","","(71,195",")"]] [[/GREPCENT_TABLE]] (1) The estimated increase (decrease) is after income taxes. K-64 Management’s Discussion and Analysis Interest Rate Risk We also invest in bonds, loans or other interest rate sensitive instruments. Our strategy is to acquire or originate such instruments at prices or with interest rates considered appropriate relative to the perceived credit risk. We also issue debt in the ordinary course of business to fund business operations, business acquisitions and for other general purposes. We attempt to maintain high credit ratings in order to minimize the cost of our debt. We generally do not utilize derivative products, such as interest rate swaps, to manage interest rate risks and we do not attempt to match maturities of assets and liabilities. The fair values of our fixed maturity investments, loans and finance receivables and notes payable and other borrowings will fluctuate in response to changes in market interest rates. Increases and decreases in interest rates generally translate into decreases and increases in fair values of these instruments. Additionally, fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions. The following table summarizes the estimated effects of hypothetical changes in interest rates on our significant assets and liabilities that are subject to significant interest rate risk. We assumed that the interest rate changes occur immediately and uniformly to each category of instrument and that there were no significant changes to other factors used to determine the value of the instrument. The hypothetical changes in interest rates do not reflect the best or worst case scenarios. Actual results may differ from those reflected in the table. Dollars are in millions. [[GREPCENT_TABLE]] [["","","","","","Estimated Fair Value After Hypothetical Change in Interest Rates (bp=basis points)"],["","","Fair Value","","","100 bp decrease","","","100 bp increase","","","200 bp increase","","","300 bp increase"],["December 31, 2023"],["Assets:"],["Investments in fixed maturity securities","","$","23,758","","","$","23,937","","","$","23,585","","","$","23,419","","","$","23,258"],["Investments in equity securities*","","","8,688","","","","9,069","","","","8,329","","","","7,990","","","","7,670"],["Loans and finance receivables","","","24,190","","","","25,187","","","","23,266","","","","22,409","","","","21,612"],["Liabilities:"],["Notes payable and other borrowings:"],["Insurance and other","","","39,184","","","","42,750","","","","36,161","","","","33,581","","","","31,361"],["Railroad, utilities and energy","","","81,036","","","","88,915","","","","74,379","","","","68,792","","","","64,043"],["December 31, 2022"],["Assets:"],["Investments in fixed maturity securities","","$","25,128","","","$","25,619","","","$","24,659","","","$","24,215","","","$","23,794"],["Investments in equity securities*","","","9,964","","","","10,434","","","","9,523","","","","9,109","","","","8,719"],["Loans and finance receivables","","","23,428","","","","24,249","","","","22,633","","","","21,907","","","","21,228"],["Liabilities:"],["Notes payable and other borrowings:"],["Insurance and other","","","41,961","","","","45,535","","","","38,941","","","","36,367","","","","34,157"],["Railroad, utilities and energy","","","67,651","","","","74,698","","","","61,725","","","","56,710","","","","52,430"]] [[/GREPCENT_TABLE]] * Includes Cumulative Perpetual Preferred Stocks Foreign Currency Risk Certain of our subsidiaries operate in foreign jurisdictions and we transact business in foreign currencies. In addition, we hold investments in common stocks of major multinational companies, who have significant foreign business and foreign currency risk of their own. We generally do not attempt to match assets and liabilities by currency and do not use derivative contracts to manage foreign currency risks in a meaningful way. K-65 Management’s Discussion and Analysis Foreign Currency Risk Our net assets subject to financial statement translation into U.S. Dollars are primarily in our insurance, utilities and energy and certain manufacturing subsidiaries. A portion of our financial statement translation-related impact from changes in foreign currency rates is recorded in other comprehensive income. In addition, we include gains or losses from changes in foreign currency exchange rates in net earnings related to non-U.S. Dollar denominated assets and liabilities of Berkshire and its U.S.-based subsidiaries. A summary of these gains (losses), after-tax, for each of the years ending December 31, 2023 and 2022 follows (in millions). [[GREPCENT_TABLE]] [["","","2023","","","2022"],["Non-U.S. denominated debt included in net earnings","","$","211","","","$","1,263"],["Net liabilities under certain reinsurance contracts included in net earnings","","","(241",")","","","482"],["Foreign currency translation included in other comprehensive income","","","749","","","","(2,050",")"]] [[/GREPCENT_TABLE]] Commodity Price Risk Our subsidiaries use commodities in various ways in manufacturing and providing services. As such, we are subject to price risks related to various commodities. In most instances, we attempt to manage these risks through the pricing of our products and services to customers. To the extent that we are unable to sustain price increases in response to commodity price increases, our operating results will likely be adversely affected. We generally do not utilize derivative contracts to manage commodity price risks to any significant degree.