ClaimsWarren Buffett

“After the Equitas transaction, however, the annual DCRA cost will initially increase to about $450 million a year.”

Warren Buffett, Berkshire chairman 2007 Berkshire Hathaway 2006 Letter to Shareholders (Berkshire Hathaway) archived copy

Guidance Their own work or organisation

After the Equitas transaction, Berkshire's annual DCRA cost will initially increase to about $450 million a year.

Mostly true True in substance, wrong in a detail.

Guidance: A company's own figures for its results over a period, checked against what it then reported.

The rule for a forecast that gives a range or a bound: the reported figure has to meet it as stated. A figure outside a range counts as not met whether it came in above or below, so beating a forecast is scored like missing it. The reasoning says which it was.

The second judge would not resolve this claim; the verdict shown is the first judge's.

The evidence is the person's or their organisation's own records.

Said for an organisation they lead or work for; it counts on both records.

What would count as true or false

Test: Berkshire's reported annual amortization of deferred charges on reinsurance assumed (DCRA) for 2007, the first full year after the Equitas transaction, as given in Berkshire's 2007 annual report/10-K or the 2007 shareholder letter. True: the 2007 charge rose from the pre-Equitas level and was within ±10% of $450 million ($405M–$495M). Mostly true: it rose and was within ±10–20% of $450M. Mostly false: it rose but was 20–35% away from $450M, or it was near $450M only in a later year rather than initially. False: it did not rise, or it was more than 35% away from $450M.

Set before the research began.

Evidence (9)

  1. E1 2007ar.pdf Berkshire Hathaway Inc. · 29 February 2008 Own record

    “Losses incurred consisted of an estimated liability for unpaid losses and loss adjustment expenses of $9.3 billion less an asset for unamortized deferred charges reinsurance assumed of $2.2 billion.”

  2. E2 2007ar.pdf Berkshire Hathaway Inc. · 29 February 2008 Own record

    “The increase in float in 2007 was principally due to the Equitas reinsurance transaction.”

  3. E3 Berkshire Hathaway Inc. 2007 Annual Report Berkshire Hathaway Inc. · February 2008 Own record

    “Insurance premiums earned in 2007 included $7.1 billion from a single reinsurance transaction with Equitas.”

  4. E4 Berkshire Hathaway Inc. 2007 Annual Report Berkshire Hathaway Inc. · February 2008 Own record

    “Premiums earned from retroactive reinsurance in 2007 included $7.1 billion from the Equitas reinsurance agreement”

  5. E5 Berkshire Hathaway Inc. 2007 Annual Report Berkshire Hathaway Inc. · February 2008 Own record

    “The increase in float in 2007 was principally due to the Equitas reinsurance transaction.”

  6. E6 printmgr file Berkshire Hathaway Inc. Own record

    “Underwriting losses from retroactive policies in 2007 included deferred charge amortization of $156 million on contracts written in 2007 (primarily the Equitas contract).”

  7. E7 printmgr file Berkshire Hathaway Inc. Own record

    “Amortization charges included in prior accident years’ losses were $451 million in 2008, $213 million in 2007 and $358 million in 2006.”

  8. E8 printmgr file Berkshire Hathaway Inc. Own record

    “Prior accident years incurred losses also include amortization of deferred charges related to retroactive reinsurance contracts incepting prior to the beginning of the year.”

  9. E9 printmgr file Berkshire Hathaway Inc. Own record

    “Losses incurred consisted of an estimated liability for unpaid losses and loss adjustment expenses of $9.3 billion less an asset for unamortized deferred charges reinsurance assumed of $2.2 billion.”

Reasoning

Berkshire's 2008 annual report gives 2007 deferred charge amortization in two parts. It was $213 million on contracts from prior years (E7) and $156 million on contracts written in 2007, mainly Equitas (E6). Together that is about $369 million. This is above the 2006 prior-year amortization of $358 million (E7), but about 18% below $450 million, which falls in the 10–20% band. The 2008 charge on prior-year contracts was $451 million (E7), close to the guided level, but the criteria test 2007, and the full-year 2006 figure is not given.

Cite this claim

Warren Buffett, “After the Equitas transaction, Berkshire's annual DCRA cost will initially increase to about $450 million a year.” (said 2007). Verdict: mostly true. Reliability API, claim c_b6a10e811dee, method 0.1.0+28da144b, dataset release v1.1.2. https://epistacklabs.com/claims/c_b6a10e811dee

This claim is in dataset release v1.1.2, with the same verdict.

Reply to this claim

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