Berkshire boosts liability estimate on AIG reinsurance contract
(Reuters) — Berkshire Hathaway Inc., the conglomerate run by billionaire Warren Buffett, on Saturday disclosed a $1.8 billion increase in estimated claim liabilities under a big reinsurance contract with American International Group Inc.
In its annual report, Berkshire said the increase, to $18.2 billion, was made in the fourth quarter and was based on higher-than-expected loss payments reported by AIG.
Berkshire also boosted a related deferred charge asset by $1.7 billion and estimated its year-end net liability under the contract was $10.7 billion.
The January 2017 contract called for Berkshire's National Indemnity Co. to take on many of the long-term risks in AIG's property/casualty portfolio, sometimes known as "long-tail" exposure, in exchange for $10.2 billion upfront.
National Indemnity agreed to take on 80% of net losses in excess of the first $25 billion, with a maximum liability of $20 billion.
The contract reduced potential risks for New York-based AIG, and some analysts said soon after it was announced that the pricing terms appeared fair.
At the same time, the $10.2 billion payment boosted Berkshire's insurance "float," which reflects premiums received before claims are paid, and gave Mr. Buffett more money to invest.
Berkshire is based in Omaha, Nebraska.
Read Next
-
AIG buys $20 billion in long-tail reinsurance from Berkshire Hathaway
American International Group Inc. will pay Berkshire Hathaway Inc. $9.8 billion to reinsure much of its pre-2015 long-tail commercial liability exposures, the insurer announced Friday.
Related Stories
-
AIG buys $20 billion in long-tail reinsurance from Berkshire Hathaway
-
AIG deal could jeopardize Berkshire Hathaway underwriting results: Analysts
-
Buffett highlights Berkshire’s strength as insurance operations post loss
