National Indemnity to assume $1.6bn of net liabilities

Continental Casualty Company, the principal operating subsidiary of US insurance group CNA Financial Corporation, has agreed to transfer its legacy asbestos and environmental pollution (A&E) liabilities to Berkshire Hathaway unit National Indemnity.

Under the deal, effective retroactively from January 1 2010, the CNA companies will cede approximately $1.6bn of net asbestos and environmental pollution liabilities to National Indemnity under a reinsurance agreement with an aggregate limit of $4bn. The aggregate reinsurance limit will also cover credit risk on existing third-party reinsurance related to these liabilities.

The CNA companies will pay National Indemnity a reinsurance premium of $2bn and transfer to it the right to collect billed third-party reinsurance receivables with a net book value of approximately $200 million.

To secure its obligations, National Indemnity will deposit $2.2bn in a collateral trust for the benefit of the CNA companies. Berkshire Hathaway has guaranteed the payment obligations of National Indemnity up to the full aggregate reinsurance limit as well as certain of its subsidiary’s performance obligations under the trust agreement.

National Indemnity will assume responsibility for claims handling and collection from third party reinsurers related to the CNA companies' asbestos and environmental pollution claims.

CNA expects to recognize an after-tax GAAP loss of approximately $375m as a result of this transaction at closing.

Rating agency AM Best has affirmed CNA’s A financial strength rating following the announcement of the transaction. The outlook on the rating is stable.