Liberty Mutual Insurance, a P&C insurer, has reached an agreement with National Indemnity Co., a subsidiary of Berkshire Hathaway Inc., on a combined aggregate adverse development cover for substantially all of Liberty Mutual Insurance’s U.S. workers' compensation, asbestos and environmental liabilities. This attaches at about $12.5 billion of combined aggregate reserves with an aggregate limit of $6.5 billion.
Effective Jan. 1, 2014, Liberty Mutual Insurance ceded about $3.3 billion of existing liabilities under a retroactive reinsurance agreement. NICO will provide about $3.2 billion of additional aggregate adverse development cover. Liberty Mutual Insurance paid NICO total consideration of about $3 billion.
The agreement covers Liberty Mutual Insurance’s potentially volatile U.S. asbestos and environmental liabilities arising under policies of insurance and reinsurance with effective dates before Jan. 1, 2005, as well as commercial insurance’s workers’ compensation liabilities as respects injuries or accidents occurring before Jan. 1, 2014. NICO will assume responsibility for claims handling related to Liberty Mutual Insurance’s asbestos and environmental claims. Liberty Mutual will continue to handle all workers compensation claims.
This transaction will be accounted for as retroactive reinsurance in Liberty Mutual Insurance’s GAAP consolidated financial statements and results in a pre-tax loss of about $130 million as of the effective date, which will be included in third-quarter results.
"We believe that this agreement further strengthens our financial position as it eliminates a substantial source of uncertainty in these liabilities and allows us to focus on execution in our core businesses,” said David H. Long, Liberty Mutual Insurance chairman and CEO.
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