【正文】 It is no coincidence that the price of Berkshire stock over the 42year 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 areas, but our strong emphasis will always be on building operating earnings.************Now, let’s examine the four major sectors of our operations. Each has vastly different balance sheet and ine characteristics from the others. Lumping them together therefore impedes analysis. So we’ll present them as four separate businesses, which is how Charlie and I view them.InsuranceLet’s look first at insurance, Berkshire’s core operation and the engine that has propelled our expansion over the years.Propertycasualty (“P/C”) insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ pensation accidents, payments can stretch over decades. This collectnow, paylater model leaves us holding large sums – money we call “float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. Though individual policies and claims e and go, the amount of float we hold remains quite 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 $ 391980 2371990 1,6322000 27,8712010 65,8322012 73,125Last year I told you that our float was likely to level off or even decline a bit in the future. Our insurance CEOs set out to prove me wrong and did, increasing float last year by $ billion. I now expect a further increase in 2013. But further gains 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 runoff 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 2% in any year.If our premiums exceed the total of our expenses and eventual losses, we register an underwriting profit that adds to the investment ine our float produces. When such a profit is earned, we enjoy the use of free money– and, better yet, get paid for holding it. That’s like your taking out a loan and having the bank pay you interest.Unfortunately, the wish of all insurers to achieve this happy result creates intense petition, so vigorous in most years that it causes the P/C industry as a whole to operate at a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. For example, State Farm, by far the country’s largest insurer and a wellmanaged pany besides, incurred an underwriting loss in eight of the eleven years ending in 2011. (Their financials for 2012 are not yet available.) There are a lot of ways to lose money in insurance, and the industry never ceases searching for new ones.As noted in the first section of this report, we have now operated at an underwriting profit for ten consecutive years, our pretax gain for the period having totaled $ billion. Looking ahead, I believe we will continue to underwrite profitably in most years. If we do, our float will be better than free money.So how does our attractive float affect the calculations of intrinsic value? When Berkshire’s book value is calculated, the full amount of our float is deducted as a liability, just as if we had to pay it out tomorrow and were unable to replenish it. But that’s an incorrect way to look at float, which should instead be viewed as a revolving fund. If float is both costless and longenduring, which I believe Berkshire’s will be, the true value of this liability is dramatically less than the accounting liability.A partial offset to this overstated liability is $ billion of “goodwill” that is attributable to our insurance panies and included in book value as an asset. In effect, this goodwill represents the price we paid for the floatgenerating capabilities of our insurance operations. The cost of the goodwill, however, has no bearing on its true value. For example, if an insurance business sustains large and prolonged underwriting losses, any goodwill asset carried on the books should be deemed valueless, whatever its original cost.Fortunately, that’s not the case at Berkshire. Charlie and I believe the true economic value of our insurance goodwill – what we would happily pay to purchase an insurance operation producing float of similar quality –tobe far in excess of its historic carrying value. The value of our float is one reason – a huge reason – why we believe Berkshire’s intrinsic business value substantially exceeds its book value.Let me emphasize once again that costfree float is not an oute to be expected for the P/C industry as a whole: There is very little “Berkshirequality” float existing in the insurance world. In 37 of the 45 years ending in 2011, the industry’s premiums have been inadequate to cover claims plus expenses. Consequently, the industry’s overall return on tangible equity has for many decades fallen far short of the average return realized by American industry, a sorry performance almost certain to continue.A further unpleasant reality adds to the industry’s dim prospects: Insurance earnings are now benefitting from “l(fā)egacy” bond portfolios that deliver much higher yields than will be available when funds are reinvested during the next few years – and perhaps for many years beyond that. Today’s bond portfolios are, in effect, wasting assets. Earnings of insurers will be hurt in a significant way as bonds mature and are rolled over.************ Berkshire’s outstanding economics exist only because we have some terrific managers running some extraordinary insurance operations. Let me tell you about the major units.First by float size is the Berkshire Hathaway Reinsurance Group, run by Ajit Jain. Ajit insures risks that no one else has the desire or t