Two new retroactive reinsurance deals involving Berkshire Hathaway were announced in January.
First up, on January 3, was The Hartford Fire Insurance Company and certain of its affiliates (collectively “Hartford”), which ceded existing net asbestos and environmental (“A&E”) reserves to National Indemnity (“NICO”), a Berkshire Hathaway subsidiary. The terms of the deal are for a premium payment of $650 million for a reinsurance limit of $1.5 billion covering adverse development above Hartford’s existing reserves at December 31, 2016.
Then on January 20, we heard from American International Group (“AIG”), which had entered into a monster of a deal with NICO under which it pays a premium of $9.8 billion for a reinsurance limit of $20 billion, excess of $25 billion. This deal covers adverse development for 80% of AIG’s U.S. commercial long-tail exposures underwritten before January 1, 2016.
Beyond the bare bones press releases and Form 8-K SEC filings, I have not had an opportunity to study the transaction documents or more detailed disclosures that will likely be part of these companies’ year-end reporting. So for now, I have a few preliminary observations:
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Jonathan Terrell is the Founder and President of KCIC. He has more than 30 years of international financial services experience with a multi-disciplinary background in accounting, finance and insurance. Prior to founding KCIC in 2002, he worked at Zurich Financial Services, JP Morgan, and PriceWaterhouseCoopers.Learn More About Jonathan