Net earnings for each of the past three years are disaggregated in the table that follows. Amounts are after deducting minority interests and taxes.
Underwriting results for 2001 include approximately $1.54 billion of net losses from the September 11th terrorist attack. While the potential impact of catastrophes and other large individual property losses is normally factored into reinsurance prices, past pricing did not consider the unprecedented magnitude of possible losses arising from the terrorist acts. The severity of the losses arising from the September 11th attack underscored that risks of this kind were not contemplated in premium rates. Lines of business that previously were expected to have little correlation were adversely affected in the same event to an unforeseen degree. Claims arising from other catastrophes and large individual property losses ($20 million or greater) in 2001, 2000 and 1999 periods were $87 million, $53 million and $202 million, respectively. In addition, during 2001 General Re recorded $46 million of estimated losses associated with Enron-related liability coverages.
Several finance and financial products businesses are included in this segment. Generally, these businesses invest in various types of fixed-income securities, loans, leases and other financial instruments, often utilizing leverage or borrowed funds in the process. The most significant of these businesses are BH Finance, a business engaged in proprietary trading strategies, General Re Securities ("GRS"), a dealer in derivative contracts and XTRA Corporation, a transportation equipment leasing business.
Berkshire acquired 87.3% of Shaw on January 8, 2001. Shaw is a leading manufacturer and distributor of carpet and rugs for residential and commercial use. Shaw also provides installation services and offers hardwood floor and other floor coverings. In January 2002, Berkshire acquired the remaining 12.7% of Shaw.
As a result of new accounting standards issued by the FASB in June 2001, accounting for goodwill has changed. Goodwill arising from business acquisitions completed after July 1, 2001 is not subject to systematic amortization. In addition, the systematic amortization of goodwill related to businesses acquired before June 30, 2001 will be discontinued effective January 1, 2002. The new accounting standards require that goodwill of acquired businesses continue to be tested for impairment. Berkshire has not fully completed an assessment of the new standards, however, adoption of the new standards is expected to have a significant impact on earnings.
Invested assets of the finance and financial products businesses totaled $41.6 billion at December 31, 2001 compared to $16.8 billion at December 31, 2000. Most of the increase was due to increased investments in U.S. Treasury securities and obligations of U.S. government-sponsored enterprises. These investments were primarily financed through repurchase agreements. The repurchase agreements require that fair value of the pledged collateral exceed the amount borrowed. A decline in the value of the investments pledged would require pledges of cash or additional collateral. Under the contractual terms with counterparties to its derivatives trading activities, General Re Securities ("GRS") may be required to post collateral against trading account liabilities.
Since acquired in December 1998 and through the third quarter of 2000, the international property/casualty and global life/health reinsurance activities of General Re were reported in Berkshire's financial statements based on a one-quarter lag to facilitate the timely completion of the Consolidated Financial Statements. During the fourth quarter of 2000, General Re implemented a number of procedural changes and improvements to allow reporting of these businesses without the one-quarter lag. Accordingly, Berkshire's Consolidated Statements of Earnings and Cash Flows for the year ended December 31, 2000 include five quarters of results of operations and cash flows of these operations. The effect of eliminating the one-quarter lag in reporting was not significant to Berkshire's Consolidated Statement of Earnings for the year ending December 31, 2000.
Revenues from product sales are recognized upon passage of title to the customer, which coincides with customer pickup, product shipment, delivery or acceptance, depending on terms of the sales arrangement. Service revenues are recognized as the services are performed. Services provided pursuant to a contract are either recognized over the contract period, or upon completion of the elements specified in the contract, depending on the terms of the contract.
The estimated liabilities of workers' compensation claims assumed by General Re under reinsurance contracts and liabilities assumed under structured settlement reinsurance contracts by Berkshire Hathaway Reinsurance Group are carried in the Consolidated Balance Sheets at discounted amounts. Discounted amounts pertaining to General Re's workers' compensation risks are based upon an annual discount rate of 4.5%. The discounted amounts for structured settlement reinsurance contracts are based upon the prevailing market discount rates when the contracts were written and range from 5% to 13%. The periodic discount accretion is included in the Consolidated Statements of Earnings as a component of losses and loss adjustment expenses.
On February 27, 2001, Berkshire acquired Johns Manville. Berkshire purchased all of the outstanding shares of Johns Manville common stock for $13 per share or $1.8 billion in total. Johns Manville is a leading manufacturer of insulation and building products. Johns Manville manufactures and markets products for building and equipment insulation, commercial and industrial roofing systems, high-efficiency filtration media, and fibers and non-woven mats used as reinforcements in building and industrial applications.
Berkadia financed the entire Berkadia Loan through a third party lending facility led by Fleet Bank ("Fleet Loan"). Both the Berkadia Loan and the Fleet Loan are due on August 20, 2006. Under the terms of the Fleet Loan, Berkadia is obligated to use the proceeds received from principal prepayments on the Berkadia Loan to prepay the Fleet Loan. Since the end of 2001, FNV Capital has prepaid $1.0 billion aggregate principal amount of the Berkadia Loan and Berkadia has repaid a like amount to its lenders. The Fleet Loan is collateralized by the Berkadia Loan. Among other things, the Fleet Loan requires that FNV maintain a minimum ratio of its consolidated assets to the outstanding Fleet Loan balance. Berkadia is required to pay down the loan to the extent such ratio is under the minimum. Berkshire provided Berkadia's lenders with a 90% primary guaranty of the Berkadia Loan and also provided a secondary guaranty to the 10% primary guaranty provided by Leucadia. Berkshire has a 90% economic interest in Berkadia's loan to FNV Capital and Berkadia's borrowings from the lending facility.
Incurred losses "all prior accident years" reflects the amount of estimation error charged or credited to earnings in each year with respect to the liabilities established as of the beginning of that year. During 2001, Berkshire's insurance subsidiaries recorded additional losses of $1,165 million in connection with losses occurring in years prior to 2001. This amount includes $878 million arising from General Re's traditional North American property/casualty business. The net effect of General Re's prior year reserve adjustments was a reduction of pre-tax income of approximately $800 million due to additional premiums triggered by the losses. Most of the reserve increases were taken in several casualty lines of businesses.