AIG Strikes $9.8 Billion Reinsurance Pact with Berkshire Hathaway
January 20 2017 - 9:10AM
Dow Jones News
By Anne Steele
American International Group Inc. on Friday said it has reached
a $9.8 billion reinsurance pact -- one of the largest ever such
deals -- with a unit of Berkshire Hathaway Inc.
The agreement, effective Jan. 1, 2016, with Berkshire's National
Indemnity Co., covers 80% of AIG's U.S. commercial long-tail
exposures for accident years 2015 and prior, which includes the
largest part of AIG's U.S. casualty exposures during that period.
AIG will retain sole authority to handle and resolve claims while
NICO has various access, association and consultation rights. The
agreement will be accounted for in the first quarter.
AIG also said its fourth-quarter reserve review is being
completed and it expects a material prior-year development charge
in the period.
Over the past year, global insurance conglomerate AIG has ramped
up divestitures and other moves to improve its financial results,
in the face of pressure from billionaire investors Carl Icahn and
John Paulson. After publicly criticizing the company's approach in
2015, Mr. Paulson and a lieutenant to Mr. Icahn have been on AIG's
board since last spring.
Among recent divestitures, AIG agreed in the fall to sell some
Latin American and European property-and-casualty insurance
operations to Fairfax Financial Holdings Ltd. Total cash
consideration in that transaction is about $240 million. In August,
AIG agreed to sell its mortgage-insurance unit for about $3.4
billion to Arch Capital Group Ltd.
The $9.8 billion, payable in full by June 30 with interest at 4%
a year, will be placed into a collateral trust account as security
for NICO's claim payment obligations to the AIG operating
subsidiaries. NICO is assuming 80% of the net losses and net
allocated loss adjustment expenses on the subject reserves after
the first $25 billion, and NICO's overall limit of liability under
the agreement is $20 billion.
Write to Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires
January 20, 2017 08:55 ET (13:55 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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