Chartis, the property-casualty and general insurance firm of AIG, has entered into a deal to transfer the bulk of its asbestos liabilities to Warren Buffett's Berkshire Hathaway, as part of reducing the risk.
Under this transaction, Chartis will transfer asbestos liabilities to National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway.
Chartis will cede the bulk of its net asbestos liabilities to NICO with an aggregate limit of $3.5 bn under a retroactive reinsurance agreement. It will pay NICO approximately $1.65b in respect of the cession. The deal is retroactively effective January 1, 2011.
According to the Chartis, the transaction with NICO covers potentially volatile US-related asbestos exposures and it does not cover asbestos accounts that it believes have already been reserved to their limit of liability or certain other ancillary asbestos exposure assumed by its affiliates.
The insurer added that for those asbestos claims subject to the reinsurance from NICO, NICO will assume responsibility for claims handling. It will also assume collection responsibility and collectability risk for third-party reinsurance related to those claims.
In the books of Chartis’ financial results the transaction will be accounted for as retroactive reinsurance and is expected to result in a deferred pretax gain of $200m.
Chartis CEO Peter Hancock said this transaction is beneficial for Chartis, as it will reduce the risk of future adverse development of US asbestos exposures, including the risk associated with the recoverability of related reinsurance.
The closing of the transaction is subject to regulatory approvals.