A property and casualty unit of bailed-out insurer American International Group Inc. is transferring potential asbestos liabilities to a subsidiary of Warren Buffett's Berkshire Hathaway Inc. to reduce its risk.
Chartis, which is a core part of New York-based AIG, said Wednesday that had agreed to pay Berkshire's National Indemnity about $1.65 billion for a retroactive reinsurance policy that will cover up to $3.5 billion in asbestos losses.
Insurers buy reinsurance policies as backup coverage designed to help spread out the risk, and several of Berkshire's subsidiaries specialize in reinsurance. Berkshire and National Indemnity are both based in Omaha, Neb.
Chartis plans to record a deferred pretax gain of about $200 million in the second quarter as part of the deal. The deal is retroactively effective Jan. 1.