AIG Enters Reinsurance Agreement With Berkshire Hathaway Unit

By Ciara LinnaneMarketsMarketWatch Pulse

American International Group Inc. said Friday it has entered an adverse development reinsurance agreement with a unit of Warren Buffett's Berkshire Hathaway Inc. . The agreement, which allows the insured party to shift the timing of losses that have already occurred, as well as ones incurred but not yet reported, to the insurer in return for a premium, covers 80% of AIG's U.S. commercial long-tail exposures for 2015 and before, including the biggest part of AIG's casualty exposures during that period. AIG will pay a premium of $9.8 billion by June 30, with interest set at 4% a year from Jan. 1, 2016 to date of payment. Berkshire unit National Indemnity Company is assuming 80% of the net losses and net allocated loss adjustment costs on the subject reserves in excess of the first $25 billion. The unit's overall limit of liability is $20 billion. AIG is currently completing its fourth-quarter reserve review and will publish it with its year-end earnings. The company is expecting a material prior year adverse development charge for the fourth quarter. AIG shares were not yet active premarket, but have gained 20% in the last 12 months, while the S&P 500 has gained about 21%.

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