AIG Partners with Berkshire Hathaway Unit on Reinsurance Agreement
January 20 2017 - 8:00AM
Business Wire
- Agreement furthers strategy to optimize
capital efficiency
- Cedes 80% of reserve risk on
substantially all U.S. Commercial long-tail exposures for accident
years 2015 and prior, representing carried reserves of
approximately $34 billion, net of discount as of January 1,
2016
- Maintains control of claims handling
and commitment to serving our customers
American International Group, Inc. (NYSE:AIG) today announced
that it has entered into a binding term sheet for an adverse
development reinsurance agreement, effective January 1, 2016, with
National Indemnity Company (NICO), a subsidiary of Berkshire
Hathaway Inc. The agreement covers 80% of substantially all of
AIG’s U.S. Commercial long-tail exposures for accident years 2015
and prior, which includes the largest part of AIG’s U.S. casualty
exposures during that period. AIG will retain sole authority to
handle and resolve claims, and NICO has various access, association
and consultation rights.
“This decisive step enables us to focus firmly on the future and
build on the progress we’ve made in transforming AIG,” said Peter
D. Hancock, AIG President and Chief Executive Officer. “The
agreement supports our stated strategy and gives us additional risk
capacity to serve our clients and return capital to
shareholders.”
The consideration for this agreement is $9.8 billion payable in
full by June 30, 2017, with interest at 4% per annum from January
1, 2016 to date of payment. The consideration paid to NICO will be
placed into a collateral trust account as security for NICO’s claim
payment obligations to the AIG operating subsidiaries, and
Berkshire Hathaway will provide a parental guarantee to secure the
obligations of NICO under the agreement.
NICO is assuming 80% of the net losses and net allocated loss
adjustment expenses on the subject reserves in excess of the first
$25 billion and NICO’s overall limit of liability under the
agreement is $20 billion. This provides material protection to
policyholders against adverse developments beyond current reserve
levels.
AIG’s fourth quarter reserve review is being finalized and the
results of this review will be included in the company’s year-end
financial results. AIG currently expects a material prior year
adverse development charge in the fourth quarter.
The agreement will be accounted for in the first quarter of 2017
as a retroactive reinsurance agreement. AIG will recognize a
loss or a deferred gain at inception of the agreement equal to the
difference between the consideration paid and the ceded reserves as
of December 31, 2016. Had this agreement been entered into on
January 1, 2016, AIG would have recognized a loss of approximately
$2.9 billion, based on carried reserves of approximately $34
billion, net of discount at that time. This loss would be
reduced by AIG’s expected reinsurance recoveries from NICO’s 80%
share of any 2016 calendar year adverse prior year development
covered by the contract. If that share exceeds $2.9 billion, then a
deferred gain is established, which will be amortized into the
income statement in line with expected cash reinsurance recoveries
from NICO.
The closing of the transaction contemplated by this agreement is
subject to receipt of any required regulatory approvals, execution
of definitive transaction documentation and satisfaction of other
conditions.
# # #
American International Group, Inc. (AIG) is a leading global
insurance organization. Founded in 1919, today AIG member companies
provide a wide range of property casualty insurance, life
insurance, retirement products, and other financial services to
customers in more than 100 countries and jurisdictions. These
diverse offerings include products and services that help
businesses and individuals protect their assets, manage risks and
provide for retirement security. AIG common stock is listed on the
New York Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com and
www.aig.com/strategyupdate | YouTube: www.youtube.com/aig |
Twitter: @AIGinsurance | LinkedIn:
www.linkedin.com/company/aig. These references with additional
information about AIG have been provided as a convenience, and the
information contained on such websites is not incorporated by
reference into this press release.
AIG is the marketing name for the worldwide property-casualty,
life and retirement, and general insurance operations of American
International Group, Inc. For additional information, please visit
our website at www.aig.com. All products and services are written
or provided by subsidiaries or affiliates of American International
Group, Inc. Products or services may not be available in all
countries, and coverage is subject to actual policy language.
Non-insurance products and services may be provided by independent
third parties. Certain property-casualty coverages may be provided
by a surplus lines insurer. Surplus lines insurers do not generally
participate in state guaranty funds, and insureds are therefore not
protected by such funds.
This press release contains “forward-looking statements” within
the meaning of the Private Securities Litigation Reform Act of
1995. These forward-looking statements reflect AIG’s current views
with respect to future events and are based on assumptions and are
subject to risks and uncertainties, including completion of the
year end audit process. Except for AIG’s ongoing obligation to
disclose material information as required by federal securities
laws, it does not intend to provide an update concerning any future
revisions to any forward-looking statements to reflect events or
circumstances occurring after the date hereof.
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version on businesswire.com: http://www.businesswire.com/news/home/20170120005265/en/
American International Group, Inc.Media:Jennifer Hendricks
Sullivan, 212-770-3141jennifer.sullivan@aig.comorInvestors:Liz
Werner, 212-770-7074elizabeth.werner@aig.com
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