CHICAGO—CNA Financial Corp.'s agreement to cede $1.6 billion in net asbestos and environmental pollution liabilities to Berkshire Hathaway Inc. and pay a $2 billion premium to Berkshire for $4 billion in reinsurance coverage removes a potentially major legacy liability for CNA, experts and analysts say.

The agreement between several CNA units and Berkshire unit National Indemnity Co. will cover credit risks on existing third-party reinsurance related to the liabilities, CNA said last week.

“We believe this transaction is consistent with our focus on financial stability and delivering improved levels of operating consistency as we effectively eliminate a significant source of uncertainty from these legacy liabilities,” CNA Chairman and CEO Thomas F. Motamed said in a statement.

Under terms of the deal, CNA principal operating subsidiary Continental Casualty Co. and several other insurance units also will transfer to National Indemnity the right to collect billed third-party receivables with a net book value of about $200 million. To secure its obligations, National Indemnity will deposit $2.2 billion in a collateral trust for the benefit of the CNA companies.

Omaha, Neb.-based Berkshire has guaranteed National Indemnity's payment obligations up to the full aggregate reinsurance limit as well as certain National Indemnity performance obligations under the trust agreement, CNA said.

National Indemnity will handle claims and collect from third-party reinsurers related to the asbestos and environmental pollution claims.

Bret Howlett, an equities analyst with Standard & Poor's Corp. in New York, noted that CNA reported an unfavorable net claim and claim adjustment expense reserve development of $79 million related to asbestos exposures and $76 million related to environmental pollution exposures in the fourth quarter of 2009. The insurer's net asbestos and environmental pollution reserves totaled $1.4 billion in 2009.

“It just adds more consistency anytime you have less uncertainty surrounding accounting charges and reserve development, especially when it comes to something like asbestos,” Mr. Howlett said.

The transaction “does provide more of a certainty around (CNA's) asbestos exposure,” said Brian Schneider, an analyst with Fitch Ratings in Chicago. “It's something they have been dealing with for quite a while” and, with the agreement, do not have to be concerned much about anymore, he said.

The $2 billion premium is a “sizeable amount,” but “given that it's $4 billion of coverage, it's a pretty big cushion for them to be able to withstand any further changes in the liability,” Mr. Schneider said.

S&P Credit Analyst Steven Ader said the insurer is “substantially eliminating the potential for adverse development” in its asbestos and environmental pollution liability reserves. S&P left CNA's ratings unchanged.

Unlike standard reserves, there can be significant volatility associated with asbestos reserves, Mr. Ader said.

For instance, an insurer that is 50% liable on an asbestos claim may find the other insurer on the policy is out of business. “Then, all these claims come to you. You have to assume liability,” Mr. Ader said.

Meyer Shields, a principal at Stifel, Nicolaus & Co. Inc. in Baltimore, said, “CNA just doesn't need the hassle of worrying about asbestos, and I would say from Berkshire's perspective they're certainly getting more value in assets than the current estimate of liabilities, and Berkshire's capital level means that Berkshire can invest premiums more profitably, or aggressively, than CNA could.”

This “means that even if the loss estimates end up higher, they could more than make up the difference on the float,” Mr. Shields said.

“We view it as a positive,” said W. Dolson Smith, an analyst with Oldwick, N.J.-based A.M. Best Co. Inc., which also left CNA's ratings unchanged. While such transactions are difficult to negotiate, “it's worked out in this case. Here, both sides obviously perceive they will achieve their financial objectives.”