Results of Operations

Net earnings attributable to Berkshire are disaggregated in the table that
follows. Amounts are after deducting income taxes and exclude earnings
attributable to noncontrolling interests. Amounts are in millions.

                                           Second Quarter          First Six Months
                                          2012        2011         2012         2011
Insurance - underwriting                 $   619     $    (7 )   $     673     $  (828 )
Insurance - investment income              1,068         995         1,859       1,947
Railroad                                     802         690         1,503       1,297
Utilities and energy                         253         215           591         516
Manufacturing, service and retailing *     1,025         789         1,879       1,347
Finance and financial products               120         110           224         206
Other                                       (167 )       (88 )        (344 )      (188 )
Investment and derivative gains/losses      (612 )       713           (32 )       631
Net earnings attributable to Berkshire   $ 3,108     $ 3,417     $   6,353     $ 4,928

Through our subsidiaries, we engage in a number of diverse business activities. Our operating businesses are managed on an unusually decentralized basis. There are essentially no centralized or integrated business functions (such as sales, marketing, purchasing, legal or human resources) and there is minimal involvement by our corporate headquarters in the day-to-day business activities of the operating businesses. 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. It also is responsible for establishing and monitoring Berkshire's corporate governance efforts, including, but not limited to, communicating the appropriate "tone at the top" messages to its employees and associates, monitoring governance efforts at the operating businesses, and participating in the resolution of governance-related issues as needed. The business segment data (Note 17 to the Consolidated Financial Statements) should be read in conjunction with this discussion. We completed the acquisition of The Lubrizol Corporation on September 16, 2011 and its results are included for the second quarter and first six months of 2012 as a component of manufacturing, service and retailing businesses in the preceding table.

During the first six months of 2011, our reinsurance operations incurred insurance losses of approximately $1.2 billion, after tax, from several significant catastrophe events, most of which occurred in the first quarter. Losses incurred from catastrophes during the first six months of 2012 were relatively insignificant.

In the second quarter and first six months of 2012, investment and derivative gains/losses included after-tax losses from derivative contracts of $693 million and $43 million, respectively. In 2011, derivative contracts produced after-tax losses of $120 million in the second quarter and after-tax gains of $56 million in the first six months. Investment and derivative gains/losses in the first six months also included after-tax other-than-temporary impairment ("OTTI") losses of $219 million in 2012 and $322 million in 2011. In 2012, the OTTI losses related to fixed maturity investments in a single issuer where we concluded that we are unlikely to receive all contractual cash flows when due. In 2011, the OTTI losses related to certain equity securities. In the second quarter of 2011, we recognized an after-tax gain of approximately $806 million from the redemption of our investment in Goldman Sachs 10% Preferred Stock. We believe that realized investment gains/losses and OTTI losses are often meaningless in terms of understanding our reported results or evaluating our economic performance. The timing and magnitude of investment and derivative gains and losses has caused and will likely continue to cause significant volatility in our periodic earnings.

Insurance-Underwriting

We engage in both primary insurance and reinsurance of property and casualty risks. In primary insurance activities, we assume defined portions of the risks of loss from persons or organizations that are directly subject to the risks. In reinsurance activities, we assume defined portions of similar or dissimilar risks that other insurers or reinsurers have subjected themselves to in their own insuring activities. Our insurance and reinsurance businesses are:
(1) GEICO, (2) General Re, (3) Berkshire Hathaway Reinsurance Group ("BHRG") and
(4) Berkshire Hathaway Primary Group. General Re and BHRG also reinsure life and health risks.

Our management views insurance businesses as possessing two distinct operations
- underwriting and investing. Underwriting decisions are the responsibility of the unit managers; investing decisions, with limited exceptions, are the responsibility of Berkshire's Chairman and CEO, Warren E. Buffett. Accordingly, we evaluate the performance of underwriting operations without any allocation of investment income.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Insurance-Underwriting (Continued)

Our periodic underwriting results are affected significantly by changes in estimates for unpaid losses and loss adjustment expenses, including amounts established for loss occurrences in prior years. The timing and amount of catastrophe losses can produce significant volatility in our periodic underwriting results, particularly with respect to BHRG and General Re. Incurred losses from catastrophes occurring in the first six months of 2012 were relatively insignificant. In the first six months of 2011, we recorded aggregate pre-tax provisions for estimated catastrophe losses of approximately $1.9 billion arising from several events, including the earthquakes in Japan and New Zealand, as well as weather related events in Australia and the U.S. Our periodic underwriting results also include significant foreign currency transaction gains and losses arising from the changes in the valuations of certain non-U.S. Dollar denominated reinsurance liabilities as a result of foreign currency exchange rate fluctuations.

A key marketing strategy followed by all of our insurance businesses is the maintenance of extraordinary capital strength. Statutory surplus of our insurance businesses was approximately $95 billion at December 31, 2011. This superior capital strength creates opportunities to negotiate and enter into insurance and reinsurance contracts specially designed to meet the unique needs of insurance and reinsurance buyers.

A summary follows of underwriting results from our insurance businesses. Amounts are in millions.

                                              Second Quarter          First Six Months
                                             2012         2011        2012         2011
Underwriting gain (loss) attributable to:
GEICO                                       $   155      $  159     $    279     $    496
General Re                                      138         132          219         (194 )
Berkshire Hathaway Reinsurance Group            613        (354 )        422       (1,697 )
Berkshire Hathaway Primary Group                 51          54          122          110
Pre-tax underwriting gain (loss)                957          (9 )      1,042       (1,285 )
Income taxes and noncontrolling interests       338          (2 )        369         (457 )
Net underwriting gain (loss)                $   619      $   (7 )   $    673     $   (828 )

GEICO

Through GEICO, we primarily write private passenger automobile insurance, offering coverages to insureds in all 50 states and the District of Columbia. GEICO's policies are marketed mainly by direct response methods in which customers apply for coverage directly to the company via the Internet or over the telephone. This is a significant element in our strategy to be a low-cost auto insurer. In addition, we strive to provide excellent service to customers, with the goal of establishing long-term customer relationships. GEICO's underwriting results are summarized below. Dollars are in millions.

                                       Second Quarter                                 First Six Months
                                2012                    2011                    2012                    2011
                          Amount         %        Amount         %        Amount         %        Amount         %
Premiums earned          $ 4,132       100.0     $ 3,818       100.0     $ 8,148       100.0     $ 7,493       100.0
Losses and loss
adjustment expenses        3,145        76.1       2,954        77.4       6,078        74.6       5,607        74.8
Underwriting expenses        832        20.1         705        18.4       1,791        22.0       1,390        18.6
Total losses and
expenses                   3,977        96.2       3,659        95.8       7,869        96.6       6,997        93.4
Pre-tax underwriting
gain                     $   155                 $   159                 $   279                 $   496

Premiums earned in the second quarter and first six months of 2012 increased $314 million (8.2%) and $655 million (8.7%), respectively, compared to premiums earned in the corresponding 2011 periods. The growth in premiums earned for voluntary auto was 8.8%, as policies-in-force increased 5.8% over the past twelve months. Average premium per policy increased about 2.5% over the past twelve months. The increase in policies-in-force reflects a 4.0% decline in voluntary auto new business sales in the first six months of 2012 compared with the strong new business sales in the comparable 2011 period. Voluntary auto policies-in-force at June 30, 2012 were approximately 376,000 greater than at December 31, 2011. In recent years, the growth in voluntary auto policies-in-force has been the greatest during the first quarter.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Insurance -Underwriting (Continued)

GEICO (Continued)

Losses and loss adjustment expenses incurred in the second quarter and first six months of 2012 increased $191 million (6.5%) and $471 million (8.4%), respectively, from losses incurred in the same periods of 2011. The loss ratio
(the ratio of losses and loss adjustment expenses incurred to premiums earned)
was 74.6% in the first six months of 2012, which was relatively unchanged versus the first six months of 2011. The increases in losses and loss adjustment expenses reflected the increase in policies-in-force and generally higher average claims frequencies and severities in the significant coverage categories. In the first six months of 2012, bodily injury severities generally increased in the two to three percent range over the first six months of 2011, while physical damage severities increased in the five to seven percent range. For the first six months of 2012 and 2011, catastrophe losses were $136 million and $124 million, respectively, with most of the losses occurring in the second quarter of each year.

Underwriting expenses incurred in the second quarter and first six months of 2012 increased of $127 million (18.0%) and $401 million (28.8%), respectively, over underwriting expenses incurred in the second quarter and first six months of 2011. The increases were primarily the result of a change in U.S. GAAP concerning deferred policy acquisition costs ("DPAC"), which was adopted on a prospective basis beginning January 1, 2012. DPAC represents the underwriting costs that are eligible to be capitalized and expensed as premiums are earned over the policy period. Upon adoption of the new accounting standard, GEICO ceased deferring a large portion of its direct advertising costs. Through prospective application of the new accounting standard, DPAC as of December 31, 2011 is amortized to expense over the remainder of the related policy periods and costs related to policies written and renewed after December 31, 2011 are deferred at lower levels than in the past. The new accounting standard for DPAC does not impact the cash basis underwriting costs or our assessment of GEICO's underwriting performance. However, the new accounting standard accelerates the timing of when certain underwriting costs are recognized in earnings.

We estimate that GEICO's underwriting expenses for the first six months of 2012 would have been about $360 million less had we computed DPAC under the prior accounting standard and that, as a result, GEICO's expense ratio (the ratio of underwriting expenses to premiums earned) in 2012 would have been less than in 2011. We anticipate that substantially all the effect of transitioning to this new accounting standard will be completed by the end of the third quarter of 2012. Thereafter, we expect that GEICO's underwriting expenses reported in earnings will decline to near historical levels as measured by the expense ratio.

General Re

Through General Re, we conduct a reinsurance business offering property and casualty and life and health coverages to clients worldwide. We write property and casualty reinsurance in North America on a direct basis through General Reinsurance Corporation and internationally through Germany-based General Reinsurance AG and other wholly-owned affiliates. Property and casualty reinsurance is also written through brokers with respect to Faraday in London. Life and health reinsurance is written in North America through General Re Life Corporation and internationally through General Reinsurance AG. General Re strives to generate underwriting profits in essentially all of its product lines. Our management does not evaluate underwriting performance based upon market share and our underwriters are instructed to reject inadequately priced risks. The timing and magnitude of catastrophe and large individual losses has produced and is expected to continue to produce significant volatility in General Re's periodic underwriting results. General Re's underwriting results are summarized in the following table. Amounts are in millions.

                                  Premiums earned                             Pre-tax underwriting gain (loss)
                       Second Quarter          First Six Months            Second Quarter             First Six Months
                      2012        2011         2012        2011         2012           2011          2012          2011
Property/casualty   $   702     $   755     $  1,437     $ 1,470     $    190       $     41      $    236       $  (283 )
Life/health             724         689        1,460       1,411          (52 )           91           (17 )          89
                    $ 1,426     $ 1,444     $  2,897     $ 2,881     $    138       $    132      $    219       $  (194 )

Property/casualty

Property/casualty premiums earned in the second quarter and first six months of 2012 decreased $53 million (7.0%) and $33 million (2.2%), respectively, versus the corresponding 2011 periods. Excluding the effects of foreign currency exchange rate changes, premiums earned in the first six months of 2012 increased $21 million (1.4%). Price competition in most property and casualty lines persists and the volume of business written in recent years was less than our capacity. Our underwriters continue to exercise discipline by not accepting offers to write business where prices are deemed inadequate. We remain prepared to increase premium volumes should market conditions improve.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Insurance -Underwriting (Continued)

General Re (Continued)

Property/casualty (Continued)

Property/casualty operations produced net underwriting gains of $190 million and $236 million in the second quarter and the first six months of 2012, respectively. For the first six months of 2012, underwriting results included net underwriting gains of $210 million from property business and $26 million from casualty/workers' compensation business. The property underwriting results during the first six months of 2012 reflected an absence of significant catastrophe losses during the year as well as underwriting gains from the run-off of prior years' business, including reductions of liabilities established for prior years' catastrophe losses. The underwriting gains from casualty/workers' compensation business included favorable run-off of prior years' business and reductions of estimated unpaid losses for prior years' events, offset in part by $53 million of loss reserve discount accretion and deferred charge amortization.

In 2011, property/casualty operations generated a net underwriting gain of $41 million in the second quarter and a net underwriting loss of $283 million in the first six months. In 2011, the property business produced near break-even underwriting results in the second quarter and a net underwriting loss of $353 million for the first six months. Property underwriting results included catastrophe losses incurred of $139 million in the second quarter and $630 million in the first six months of 2011, which were primarily derived from earthquakes in Japan and New Zealand and various tornado and other weather related loss events in the United States and Australia. The casualty/workers' compensation business generated a net underwriting gain of $70 million for the first six months of 2011, reflecting overall reductions in estimated prior years' casualty loss reserves, partially offset by the recurring effects of discount accretion and deferred charge amortization.

Life/health

Premiums earned in 2012 increased $35 million (5.1%) for the second quarter and $49 million (3.5%) for the first six months over the comparable 2011 periods. Adjusting for the effects of foreign currency exchange rate changes, premiums earned in the first six months of 2012 increased $132 million (9.4%) versus 2011, primarily attributable to increased non-U.S. life business.

Life/health operations produced net underwriting losses of $52 million in the second quarter of 2012 and $17 million during the first six months of 2012. The underwriting losses in 2012 were driven by increases in claim liabilities, which were primarily attributable to greater than expected claims frequency and duration in the individual and group disability business in Australia and to a lesser extent, by higher than expected mortality in the North American individual life business. The underwriting losses in 2012 were partially offset by reductions in liability estimates related to the 2011 earthquakes in New Zealand and Japan. Underwriting gains for the first six months of 2011 were driven by lower mortality in our international operations offset, in part, by the initial loss estimates accrued in connection with the earthquakes in Japan and New Zealand and by increases in the frequency and severity of health insurance losses in the U.S.

Berkshire Hathaway Reinsurance Group ("BHRG")

Through BHRG, we underwrite excess-of-loss reinsurance and quota-share coverages on property and casualty risks for insurers and reinsurers worldwide. BHRG's business includes catastrophe excess-of-loss reinsurance and excess primary and facultative reinsurance for large or otherwise unusual property risks referred to as individual risk. BHRG also writes retroactive reinsurance, which provides indemnification of losses and loss adjustment expenses with respect to past loss events. Other multi-line business refers to other property and casualty business written on both a quota-share and excess basis and includes a quota-share contract with Swiss Reinsurance Company Ltd. ("Swiss Re") covering a 20% share of substantially all of Swiss Re's property/casualty contracts incepting between January 1, 2008 and December 31, 2012. We currently do not anticipate that the Swiss Re quota-share contract will be renewed or extended. BHRG's underwriting activities also include life reinsurance and annuity business. BHRG's underwriting results are summarized in the table below. Amounts are in millions.

                                       Premiums earned                           Pre-tax underwriting gain/loss
                            Second Quarter          First Six Months         Second Quarter          First Six Months
                           2012        2011         2012        2011         2012        2011       2012         2011
Catastrophe and
individual risk          $   251     $   170     $    385     $   359     $   174      $  108     $   256     $   (165 )
Retroactive
reinsurance                   73       1,676          371       1,819         (39 )      (100 )      (112 )       (255 )
Other multi-line
property/casualty          1,268         910        2,393       2,043         526        (320 )       396       (1,230 )
Life and annuity             742         512        1,256         991         (48 )       (42 )      (118 )        (47 )
                         $ 2,334     $ 3,268     $  4,405     $ 5,212     $   613      $ (354 )   $   422     $ (1,697 )

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Insurance -Underwriting (Continued)

Berkshire Hathaway Reinsurance Group ("BHRG") (Continued)

Premiums earned in the second quarter and first six months of 2012 from catastrophe and individual risk contracts exceeded premiums earned in the corresponding 2011 periods by $81 million (48%) and $26 million (7%), respectively. In 2012, premium volume written in the second quarter of 2012 increased, albeit over low levels in 2011. The level of business written in a given period will vary significantly due to changes in market conditions and management's assessment of the adequacy of premium rates. In recent years, we have generally constrained the volume of business written as premium rates have not been attractive enough to warrant increasing volume. However, we have the capacity and will to write substantially more business when appropriate pricing can be obtained.

Catastrophe and individual risk underwriting results for the first six months of 2012 reflected no significant losses from catastrophe events, while results for the first six months of 2011 included estimated losses of $454 million from the earthquakes in Japan and New Zealand. Catastrophe and individual risk contracts may provide exceptionally large limits of indemnification and cover catastrophe risks (such as hurricanes, earthquakes or other natural disasters) or other property and liability risks. The timing and magnitude of losses produces extraordinary volatility in periodic underwriting results of this business.

Premiums earned under retroactive reinsurance contracts in the second quarter and first six months of 2011 included approximately $1.68 billion from a reinsurance contract with Eaglestone Reinsurance Company, a subsidiary of American International Group, Inc. ("AIG"), which closed in June. Under the contract, we agreed to reinsure the bulk of AIG's U.S. asbestos liabilities. The agreement provides for a maximum limit of indemnification of $3.5 billion.

Retroactive reinsurance policies generally provide very large, but limited, indemnification of losses and loss adjustment expenses with respect to past loss events. Such losses are usually expected to be paid over long periods of time. Underwriting results attributable to retroactive reinsurance include the recurring periodic amortization of deferred charges that are established with respect to these contracts. At the inception of a contract, deferred charges represent the difference between the premium received and the estimated ultimate losses payable. Deferred charges are subsequently amortized over the estimated claims payment period using the interest method, which reflects estimates of the timing and amount of loss payments. The original estimates of the timing and amount of loss payments are subsequently analyzed against actual experience and are revised as necessary based on an actuarial evaluation of the expected remaining losses. Amortization charges and deferred charge adjustments resulting from changes to the estimated timing and amount of future loss payments are included as a component of losses and loss adjustment expenses.

The underwriting losses from retroactive policies in 2012 and 2011 primarily reflect the amortization of deferred charges. In 2012, amortization charges were partially offset by reductions in unpaid loss estimates with respect to one large contract. At June 30, 2012 and December 31, 2011, unamortized deferred charges for all of BHRG's retroactive contracts were approximately $3.8 billion and $4.0 billion, respectively. Gross unpaid losses from retroactive reinsurance contracts were approximately $18.2 billion at June 30, 2012 compared to approximately $18.8 billion as of December 31, 2011.

Premiums earned in the second quarter and first six months of 2012 from other multi-line property and casualty business increased $358 million (39%) and $350 million (17%), respectively, over the corresponding 2011 periods. Premiums earned in the second quarter and first six months of 2012 included $814 million and $1,560 million, respectively, from the Swiss Re quota-share contract. Premiums earned in the second quarter and first six months of 2011 from this contract were $590 million and $1,375 million, respectively. While there were no significant catastrophe loss events in 2012, we incurred catastrophe losses in 2011 of $25 million in the second quarter and $731 million in the first six months, which were primarily in connection with the Swiss Re contract and arose primarily from the earthquakes in Japan and New Zealand. In 2012, other multi-line property and casualty underwriting results also included foreign currency transaction gains of $172 million in the second quarter and $37 million in the first six months arising from the conversion of certain reinsurance liabilities denominated in foreign currencies into U.S. Dollars. In 2011, foreign currency transaction losses were $220 million in the second quarter and $393 million in the first six months. The foreign currency transaction gains and losses in 2012 and 2011 reflected the volatility in exchange rates primarily between the U.S. Dollar and the Swiss Franc and U.K. Pound Sterling.

Life and annuity premiums earned in 2012 and 2011 primarily derive from life reinsurance contracts, including a contract with Swiss Re Life & Health America Inc. covering yearly renewable term risks. Underwriting losses in 2012 from the life and annuity business were $48 million for the second quarter and $118 million for the first six months. During the first six months, the life reinsurance business produced underwriting losses of $40 million in 2012 and near-break-even results in 2011. The underwriting results of the life and annuity business also include underwriting losses related to a portfolio of annuity contracts, many of which were written several years ago. For the first six months, the annuity business generated underwriting losses of $78 million in 2012 and $48 million in 2011. At June 30, 2012 and December 31, 2011, annuity . . .