Intrinsic Business Value As much as Charlie and I talk about intrinsic business value.we cannot tell you precisely what that number is for Berkshire shares (nor,in fact,for any other stock).In our 2010 annual report,however,we laid out the three elementso of them qualitative ntrinsic valu ussion is repro imte of Berkshire' on pages Here is an update of the two quantitative factors:In 2013 our per-share investments increased 13.6%to $129.253 and our pre-tax earnings from businesses other than insurance and investments increased 12.8%to $9,116 per share. eamnings figure has grown at a 20.6%clip.It is no coineidence that the price of Berkshire stock over the 43-year 米带米带米来米带米来米米 me let's eamine the four major s ihichisrand uh the separa bus provide you with the information we would wish to have if our positions were reversed,with you being the reporting manager and we the absentee shareholders.(But don't get any ideas!) Insurance "Our investment in the insurance companies reflects a first major step in our efforts to achieve a more diversified base of earning power. 1967 Annual Renort report was p Property casualty ("P/C")insurers receive premiums upfront and pay claims later.In extreme cases,such as those arising from certain workers' des.This collect this float for and go.the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently,as our business grows,so does our float.And how we have grown,as the following table shows: Year Float (in millions) 070 30 337 199d 1,632 2000 27,871 01 9 Further gains in float will be tough to achieve.On the plus side,GEICO's float will almost certainly grow 也e心enedivo,however we ave umber时ood erty-casualty insurance differs in an important way from certain forms of life insurance.) >Intrinsic Business Value As much as Charlie and I talk about intrinsic business value, we cannot tell you precisely what that number is for Berkshire shares (nor, in fact, for any other stock). In our 2010 annual report, however, we laid out the three elements – one of them qualitative – that we believe are the keys to a sensible estimate of Berkshire’s intrinsic value. That discussion is reproduced in full on pages 109 - 110. Here is an update of the two quantitative factors: In 2013 our per-share investments increased 13.6% to $129,253 and our pre-tax earnings from businesses other than insurance and investments increased 12.8% to $9,116 per share. Since 1970, our per-share investments have increased at a rate of 19.3% compounded annually, and our earnings figure has grown at a 20.6% clip. It is no coincidence that the price of Berkshire stock over the 43-year period has increased at a rate very similar to that of our two measures of value. Charlie and I like to see gains in both sectors, but we will most strongly focus on building operating earnings. ************ Now, let’s examine the four major sectors of our operations. Each has vastly different balance sheet and income characteristics from the others. So we’ll present them as four separate businesses, which is how Charlie and I view them (though there are important and enduring advantages to having them all under one roof). Our goal is to provide you with the information we would wish to have if our positions were reversed, with you being the reporting manager and we the absentee shareholders. (But don’t get any ideas!) Insurance “Our investment in the insurance companies reflects a first major step in our efforts to achieve a more diversified base of earning power.” — 1967 Annual Report Let’s look first at insurance, Berkshire’s core operation and the engine that has consistently propelled our expansion since that 1967 report was published. Property-casualty (“P/C”) insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect￾now, pay-later model leaves P/C companies holding large sums – money we call “float” – that will eventually go to others. Meanwhile, insurers get to invest this float for their benefit. Though individual policies and claims come and go, the amount of float an insurer holds usually remains fairly stable in relation to premium volume. Consequently, as our business grows, so does our float. And how we have grown, as the following table shows: Year Float (in $ millions) 1970 $ 39 1980 237 1990 1,632 2000 27,871 2010 65,832 2013 77,240 Further gains in float will be tough to achieve. On the plus side, GEICO’s float will almost certainly grow. In National Indemnity’s reinsurance division, however, we have a number of run-off contracts whose float drifts downward. If we do experience a decline in float at some future time, it will be very gradual – at the outside no more than 3% in any year. The nature of our insurance contracts is such that we can never be subject to immediate demands for sums that are large compared to our cash resources. (In this respect, property-casualty insurance differs in an important way from certain forms of life insurance.) 7