AIG to pay Buffett’s Berkshire about $ 10 b in insurance deal

New York (Reuters): American International Group Inc has agreed to pay roughly $ 10.2 billion to Warren Buffett’s Berkshire Hathaway Inc to take on many long-term risks on US commercial insurance policies it has already written.

The reinsurance transaction covers “long-tail” exposures, which are liabilities that emerge long after policies are issued, from excess casualty, workers compensation and other AIG policies issued before last year.

Berkshire’s National Indemnity Co unit, led by Buffett’s reinsurance chief Ajit Jain, will take on 80% of net losses in excess of the first $ 25 billion, with a maximum liability of $ 20 billion.

AIG said the payment comprises $ 9.8 billion plus interest since 1 January 2016, and will be made by 30 June. The transaction helps AIG Chief Executive Peter Hancock lower risk at his New York-based insurer, which has reduced exposures and shed businesses since its 2008 federal bailout, and frees up capital for share buybacks.

“This decisive step enables us to focus firmly on the future,” with “additional risk capacity to serve our clients and return capital to shareholders,” Hancock said in a statement.

For Buffett, the transaction boosts how much his Omaha, Nebraska-based conglomerate can invest, including stocks and whole companies. Berkshire’s float, which helps fund growth and reflects the premiums collected upfront before claims are paid, totaled $ 91 billion on 30 September. Berkshire did not respond to requests for comment. AIG plans to take a charge in the just-completed quarter for the transaction. 

It said it would have recognized a $ 2.9 billion loss had the transaction occurred a year ago.

The payment to Berkshire represents nearly 3% of AIG’s investment portfolio.

AIG will retain authority to handle and resolve claims, similar to an arrangement that Hartford Financial Services Group Inc struck when it passed some asbestos liabilities to National Indemnity this month.

National Indemnity in 2014 reached a similar reinsurance transaction with Liberty Mutual covering $ 6.5 billion of liabilities, but took responsibility for resolving asbestos and environmental claims.

Buffett’s Berkshire Hathaway wins reinsurance licence in Malaysia

Reuters: Warren Buffett’s Berkshire Hathaway has won a licence to provide reinsurance services in Malaysia, the billionaire investor’s group said, as it expands operations in Asia. 

Berkshire Hathaway Specialty Insurance Company (BHSI) said in a statement it has established an office in the Malaysian capital Kuala Lumpur to provide the non-life reinsurance services.  “After putting down roots in Singapore, Hong Kong, and Macau, we are pleased to further expand our operations in Asia...,” BHSI Asia President Marc Breuil said in the statement. 

The Southeast Asian nation has attracted several insurers lately, who are eyeing its long-term potential. Canada’s Sun Life Financial Inc and Malaysian sovereign wealth fund Khazanah Nasional were in talks to buy Hong Leong Financial Group Bhd’s insurance business, Reuters reported last year.

Reuters also reported that Tokio Marine Holdings Inc was in exclusive talks to buy RHB Bank’s general insurance unit.  BHSI is part of Berkshire Hathaway’s National Indemnity group of insurance companies. National Indemnity has $ 194.4 billion in total admitted assets and $ 112.2 billion in policyholder surplus, according to BHSI’s website.