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Liberty Mutual enters multibillion-dollar reinsurance deal with National Indemnity

Liberty Mutual enters multibillion-dollar reinsurance deal with National Indemnity

Liberty Mutual Insurance Co. on Thursday said it has entered into a multibillion-dollar retroactive reinsurance transaction with Berkshire Hathaway Inc.'s National Indemnity Co. to cover asbestos-related and other long-term liabilities.

The transaction provides “combined aggregate adverse development cover for substantially all of Liberty Mutual Insurance's U.S. workers compensation, asbestos and environmental liabilities, attaching at approximately $12.5 billion of combined aggregate reserves with an aggregate limit of $6.5 billion,” Liberty Mutual said in a statement.

With the closing of the retroactive reinsurance agreement, effective Jan. 1 of this year, Liberty Mutual has ceded around $3.3 billion of existing liabilities. National Indemnity will provide approximately $3.2 billion of additional aggregate adverse development cover for a total consideration of about $3.0 billion paid to National Indemnity, Liberty Mutual said in the statement.

“The agreement covers Liberty Mutual Insurance's potentially volatile U.S. asbestos and environmental liabilities arising under policies of insurance and reinsurance with effective dates before Jan. 1, 2005,” as well as workers compensation liabilities regarding injuries or accidents occurring before Jan. 1, 2014, said Liberty Mutual in its statement.

National Indemnity will assume responsibility for claims handling related to Liberty Mutual's asbestos and environmental claims while Liberty Mutual will continue to handle the workers comp claims.

“We believe that this agreement further strengthens our financial position as it eliminates a substantial source of uncertainty in these liabilities and allows us to focus on execution in our core businesses,” said Liberty Mutual Holding Co. Inc. Chairman and CEO David H. Long in the statement.

This transaction will be accounted for as retroactive reinsurance in Liberty Mutual Insurance's GAAP consolidated financial statements and results in a pre-tax loss of approximately $130 million as of the effective date, which will be included in third-quarter results, Liberty Mutual said in the statement.

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