AIG’s Chartis sells $3.5bn asbestos risk

WARREN Buffett’s Berkshire Hathaway struck a deal with US insurer American International Group (AIG) yesterday to take a package of high-risk asbestos insurance policies held by AIG subsidiary Chartis off its books.

AIG has paid Berkshire-owned National Indemnity, the US’s largest reinsurer, $1.65bn (£1bn) for a retroactive insurance policy that will cover up to $3.5bn of claims associated with the policies.

The hefty upfront fee remains a preferable option for AIG compared with the ongoing risk of the policies, which have dogged Chartis for years and already cost it billions.

AIG currently holds large reserves of capital on its books as protection against potential claims. Releasing some of these will give it a $200m deferred pre-tax gain to be recorded in the second-quarter of 2011, it said.

AIG took a charge of more than $4bn in the fourth-quarter of 2010 because Chartis exposure to years-old claims was far higher than expected.

The reinsurance policy, which shares the risk of huge claims made on the asbestos policies, allows AIG to reassure investors it has its financial base under control as it prepares to sell the US government’s 92 per cent stake back to the market.

National Indemnity has become a partner of choice for insurers looking to limit their asbestos exposure in exchange for hefty up-front fees. Last July CNA Financial did a similar deal for a $2bn payment, while in 2006 Lloyd’s of London affiliate Equitas transferred its liabilities to NI.

FAST FACTS | AIG
Is 92 per cent owned by the US government following an $85bn bailout in 2008.

Will pay National Indemnity $1.65bn to cover $3.5bn of asbestos insurance policy claims.

Sees a $200m gain from reserve releases.