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.

The deal, which is effective Jan. 1, 2016, and is written by Berkshire Hathaway subsidiary National Indemnity Co., covers 80% of AIG’s U.S. commercial long-tail net losses and loss adjustment exposures above $25 billion. The limit on the reinsurance coverage is $20 billion, an AIG statement said.

AIG will retain sole authority to handle and resolve claims, but National Indemnity will have various consultation rights, the statement said.

The deal will be accounted for in the first quarter of 2017 as a retroactive reinsurance agreement. Had the deal been entered into on Jan. 1, 2016, AIG would have recognized a loss of approximately $2.9 billion, based on carried reserves of approximately $34 billion, net of discount at that time, although the loss would be reduced by reinsurance recoveries, the AIG statement said.

“This decisive step enables us to focus firmly on the future and build on the progress we’ve made in transforming AIG,” said Peter D. Hancock, AIG president and CEO. “The agreement supports our stated strategy and gives us additional risk capacity to serve our clients and return capital to shareholders.”

AIG, which faced pressure to break up from activist shareholder Carl Icahn in 2015 and last year, announced a transformation plan in January of last year. 

In an investor note, analysts at Keefe, Bruyette & Woods said the deal should help AIG overcome reserving issues.

The reinsurance agreement “should meaningfully lower the capital charges stemming from AIG’s heretofore relentless adverse development. We think this arrangement both corrects AIG’s past under-reserving and largely insulates its reserves from the risk of accelerating loss cost inflation that could accompany higher interest rates and faster economic growth,” they said in note.

Berkshire Hathaway has been involved in several large long-tail liability reinsurance agreements with U.S. insurers over the past 20 years. Earlier this month, it agreed to reinsure $1.5 billion of Hartford Financial Services Group Inc. asbestos exposures. In 2011, AIG reinsured $3.5 billion in asbestos exposures with Berkshire Hathaway.