The retroactive reinsurance agreement has a limit of $3.5bn
Chartis has entered into an agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway, to transfer the bulk Chartis’ legacy asbestos liabilities to NICO.
The transaction covers potentially volatile US-related asbestos exposures. The transaction does not cover asbestos accounts that Chartis believes have already been reserved to their limit of liability or certain other ancillary asbestos exposure assumed by Chartis affiliates.
At the closing of this transaction, but effective as of January 1, 2011, Chartis will cede the bulk of its net asbestos liabilities to NICO under a retroactive reinsurance agreement with an aggregate limit of $3.5bn.
Chartis will pay NICO approximately $1.65bn in respect of the cession.
For those asbestos claims subject to the reinsurance from NICO, NICO will assume responsibility for claims handling. It will also assume collection responsibility and collectability risk for third-party reinsurance related to those claims.
Peter Hancock, chief executive officer of Chartis, said, “We believe that this transaction is beneficial for Chartis, as it will reduce the risk of future adverse development of U.S. asbestos exposures, including the risk associated with the recoverability of related reinsurance.”
This transaction will be accounted for as retroactive reinsurance in Chartis’ consolidated financial statements and is expected to result in a deferred pre-tax gain of approximately $200m in the second quarter of 2011.
The closing of the transaction is subject to receipt of required regulatory approvals, execution of definitive transaction documentation, and satisfaction of other conditions.