Berkshire raises liability estimate on AIG reinsurance deal

Berkshire Hathaway has increased the estimated claim liabilities under a major reinsurance contract with American International Group (AIG) by approximately $1.8 billion.

In 2017, Berkshire subsidiary National Indemnity Company (NICO) entered a $9.8 billion adverse development reinsurance agreement with various subsidiaries of AIG.

NICO agreed to indemnify AIG for 80 percent of up to $25 billion of losses and allocated loss adjustment expenses in excess of $25 billion retained by AIG, with respect to certain commercial insurance loss events occurring prior to 2016.

Since then, Berkshire recorded premiums earned of $10.2 billion, and also recorded a liability for unpaid losses and loss adjustment expenses of $16.4 billion and a deferred charge reinsurance assumed asset of $6.2 billion.

As a result, in the fourth quarter of 2017, Berkshire increased its estimated ultimate claim liabilities under the AIG contract by approximately $1.8 billion based on higher than expected loss payments reported by AIG under the contractual retention, according to the annual report.

Berkshire also increased the related deferred charge asset by $1.7 billion based on its re-estimation of the amounts and timing of future claim payments. As of yearend 2017, Berkshire’s net liability from this contract was approximately $10.7 billion, representing the excess of the estimated ultimate claim liabilities of approximately $18.2 billion over the remaining deferred charge asset balance of approximately $7.5 billion.

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