BRK.A Berkshire Hathaway Inc

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)

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