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(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.
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.