A facility set up by Aon P.L.C. guaranteeing underwriting participation by Berkshire Hathaway International Insurance Ltd. on business the brokerage places involving Lloyd's of London has been called innovative on several fronts.

Aon Risk Solutions and Berkshire Hathaway, which is rated AA+ by Standard & Poor's Corp., earlier this month launched the insurance facility offering guaranteed capacity for business in which Lloyd's participates.

The facility, which Aon characterizes as an insurance sidecar, is available to Aon clients globally and covers most industry segments, said Steve McGill, group president of Aon P.L.C. and chairman and CEO of Aon Risk Solutions.

Sidecars are underwriting vehicles that usually are associated with existing insurers or reinsurers, but are capitalized separately. In most cases, the sidecars offer reinsurance or retrocessional reinsurance capacity.

While the Aon/Berkshire Hathaway facility is not capitalized separately, the agreement calls for Berkshire Hathaway to accept 7.5% of Aon retail placements in the London market where there is Lloyd's participation, Mr. McGill said.

Berkshire Hathaway will follow terms and conditions of the lead underwriter. The condition that Lloyd's be involved in the placement “is recognition and respect for Lloyd's technical underwriting expertise,” Mr. McGill said.

The agreement that goes into effect March 31 covers most lines of coverage, including property, liability, marine, energy, financial lines and professional lines. However, certain space and aviation business is not covered by the agreement. The facility will participate in about 90% of the business that Aon places in the London market, Mr. McGill said.

Aon Underwriting Managers, the London-based brokerage's managing general agent, will manage the sidecar, which has been granted authority to bind coverage on behalf of Berkshire Hathaway.

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“Providing highly rated capacity to all our clients is tremendously valuable for them. It gives them a high degree of certainty” in securing capacity and high-quality claims services, Mr. McGill said.

Many large international programs use London to meet their capacity needs; the Berkshire Hathaway agreement will guarantee a set amount of capacity, he said.

The placement guaranteed, the broad scope of the risks covered “and the fact that (business) is placed with a single carrier is innovative,” said Stuart Shipperlee, a partner at Litmus Analysis in London.

In a sense, the facility is the “lead and follow” principal of the Lloyd's subscription market taken to a logical conclusion, he said.

The Lloyd's Franchise Board, which monitors the business plans of participants in the market, is effectively “being used as the quality assurance for the underwriting by Berkshire,” Mr. Shipperlee said.

Several market sources said the facility is interesting because of its broad scope and it appears to be a less opportunistic form of sidecar than has been used to provide fresh capacity after catastrophe losses.

It also represents another way to attract capital to participate in the Lloyd's market, sources said.

One source who asked not to be named said other brokers have used sidecars for certain lines of Lloyd's business, but the Aon/Berkshire Hathaway facility differs in that it is for several categories of coverage.

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Lloyd's market participants said they hoped the facility would complement capacity already provided by existing players.

“The deal will enable Berkshire Hathaway to access Aon's business placed at Lloyd's or involving any Lloyd's placement. Aon currently supplies over 20% of all Lloyd's business, and it will concern the market that some of this income will be hived off to Berkshire Hathaway,” Hampden Capital Ltd., which represents Lloyd'sprivate underwriting members known as names, said in a statement.

“Hopefully, this will in time be complementary to Lloyd's and Aon will grow its income to Lloyd's and it will not be competitive to the market's many subscription players,” the statement said.