AIG enters reinsurance agreement with Berkshire Hathaway unit

American International Group (AIG) entered into an adverse development reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway.

The agreement is effective January 1, 2016, and covers 80 percent of substantially all of AIG’s US Commercial long-tail exposures for accident years 2015 and prior, which includes the largest part of AIG’s US casualty exposures during that period. AIG will retain sole authority to handle and resolve claims, and NICO has various access, association and consultation rights.

“This decisive step enables us to focus firmly on the future and build on the progress we’ve made in transforming AIG,” said Peter 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.”

The consideration for this agreement is $9.8 billion payable in full by June 30, 2017, with interest at 4 percent per annum from January 1, 2016 to date of payment. The consideration paid to NICO will be placed into a collateral trust account as security for NICO’s claim payment obligations to the AIG operating subsidiaries, and Berkshire Hathaway will provide a parental guarantee to secure the obligations of NICO under the agreement.

NICO is assuming 80 percent of the net losses and net allocated loss adjustment expenses on the subject reserves in excess of the first $25 billion and NICO’s overall limit of liability under the agreement is $20 billion. This provides material protection to policyholders against adverse developments beyond current reserve levels.

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