Letter to Shareholders

# 2001 Letter to Shareholders ## To the Shareholders of Berkshire Hathaway Inc. The September 11 attacks on America were an act of war. They also produced the largest insured loss in history. Our share of this loss was approximately $2.2 billion. ## The Insurance Impact The insurance industry was unprepared for the scale of the September 11 losses. Many insurers and reinsurers had underestimated the potential for catastrophic events. Some companies were pushed to the brink of failure. > "September 11 taught the insurance industry that the unthinkable can happen. Pricing must reflect that reality." Berkshire was different. We had always priced for extreme events. We had the financial strength to pay claims without strain. And we had the willingness to walk away from business that was inadequately priced. In the aftermath of September 11, insurance pricing improved dramatically. The hardening market created opportunity for companies with capital and courage. Berkshire has both. ## Underwriting Discipline [[Ajit Jain]] and our other insurance managers maintained strict underwriting discipline. We refused to write business at inadequate prices, even when competitors were eager to do so. This discipline cost us premium volume in the short term, but it preserved our capital for better opportunities. The insurance business is simple in concept but difficult in execution. The key is to: 1. Price risk accurately 2. Reserve adequately for claims 3. Maintain financial strength 4. Resist the temptation to chase market share We follow these principles religiously. They have served us well through many crises, including September 11. ## GEICO [[GEICO]] continued to gain market share. Our low-cost model gives us a significant price advantage, which attracts price-sensitive consumers. In a difficult year for many insurers, GEICO performed well. We are investing heavily in GEICO's growth. The internet has made it easier for consumers to compare insurance prices, which benefits the low-cost provider. We expect GEICO to continue gaining market share for many years. ## The Importance of Strength The September 11 crisis demonstrated the value of financial strength. When claims must be paid, policyholders want to be certain that their insurer can pay. Berkshire's fortress balance sheet provides that certainty. > "We will never risk Berkshire's financial strength for short-term gain." This commitment to strength is a competitive advantage. It allows us to win business that other insurers cannot. It gives our policyholders peace of mind. And it positions us to take advantage of opportunities when others are in distress. ## Looking Forward The insurance market has hardened significantly. Pricing is more rational than it has been in years. This creates opportunity for Berkshire. We have the capital, the discipline, and the willingness to write business when others retreat. [[Charlie Munger]] and I are optimistic about Berkshire's future. We have wonderful businesses, excellent managers, and a fortress balance sheet. We will continue to build value for shareholders. Warren E. Buffett February 2002