8-KMaterial Agreements

AMERICAN INTERNATIONAL GROUP, INC. 8-K Report, Material Agreement (Apr 20, 2011)

Filed April 20, 2011For Securities:AIG

Summary

American International Group, Inc. (AIG) announced a significant transaction on April 20, 2011, via an 8-K filing. AIG's subsidiary, Eaglestone Reinsurance Company, entered into a Master Transaction Agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway. This agreement involves the transfer of the bulk of AIG's U.S. asbestos liabilities to NICO. This transaction is designed to significantly reduce AIG's exposure to long-tail asbestos claims. In exchange for a payment of approximately $1.65 billion, NICO will assume these liabilities, along with related third-party reinsurance recoverables valued at approximately $2.8 billion. Berkshire Hathaway's involvement, including a limited guarantee, provides an additional layer of security for AIG. The deal is expected to result in a deferred pre-tax gain of approximately $200 million for AIG in the second quarter of 2011.

Key Highlights

  • 1AIG to transfer the majority of its U.S. asbestos liabilities to Berkshire Hathaway's subsidiary, NICO.
  • 2Transaction involves a payment of approximately $1.65 billion from NICO to AIG.
  • 3NICO will assume $2.8 billion in third-party reinsurance recoverables related to the ceded asbestos reserves.
  • 4Berkshire Hathaway will provide a limited guarantee of NICO's obligations.
  • 5The transaction is accounted for as retroactive reinsurance.
  • 6Expected to result in a deferred pre-tax gain of approximately $200 million for AIG in Q2 2011.
  • 7Deal is subject to regulatory approvals and other closing conditions.

Frequently Asked Questions

The primary purpose is to significantly reduce AIG's exposure and financial risk associated with its U.S. asbestos liabilities by transferring the bulk of these claims to NICO, a subsidiary of Berkshire Hathaway.

NICO will pay AIG approximately $1.65 billion in exchange for assuming the asbestos liabilities and related reinsurance recoverables.

Berkshire Hathaway's subsidiary, NICO, is assuming the liabilities. Additionally, Berkshire Hathaway itself is providing a limited guarantee to secure NICO's payment obligations to AIG, adding a layer of financial security.

The transaction is expected to close after receipt of required regulatory approvals, execution of definitive transaction documentation, and satisfaction of other customary closing conditions. The filing date was April 20, 2011.