8-KEarnings & ResultsMaterial AgreementsExhibits & Filings

AMERICAN INTERNATIONAL GROUP, INC. 8-K Report, Material Agreement (Jan 20, 2017)

Filed January 20, 2017For Securities:AIG

Summary

On January 14, 2017, American International Group (AIG) announced a significant reinsurance agreement with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway. This agreement involves AIG's indirect subsidiaries reinsuring 80% of covered long-tail commercial lines liabilities with NICO, specifically for losses with dates of loss prior to January 1, 2016, that exceed $25 billion. In exchange for a payment of $9.8 billion plus interest, NICO will cover these excess losses, up to an overall limit of $20 billion. AIG retains claims handling responsibility and the risk of collection on third-party reinsurance. The transaction is backed by a Berkshire Hathaway parent guarantee, providing substantial security for AIG's obligations. This move aims to reduce AIG's exposure to legacy liabilities and improve its financial flexibility.

Key Highlights

  • 1AIG entered into a material definitive agreement for an Aggregate Excess of Loss Reinsurance Agreement with National Indemnity Company (NICO), a Berkshire Hathaway subsidiary.
  • 2The agreement reinsures 80% of covered long-tail commercial lines liabilities for losses incurred prior to January 1, 2016.
  • 3NICO will cover losses exceeding $25 billion, up to a total limit of $20 billion.
  • 4AIG receives $9.8 billion plus interest for this reinsurance coverage.
  • 5AIG retains claims handling and adjudication responsibilities.
  • 6Berkshire Hathaway provides a parent guarantee to secure NICO's obligations.
  • 7The transaction is subject to regulatory approvals and execution of definitive documentation.

Frequently Asked Questions

The primary purpose of this agreement is for AIG to transfer a significant portion of its long-tail commercial lines liabilities, particularly those with older loss dates, to NICO. This aims to reduce AIG's exposure to potential future adverse development on these liabilities and free up capital.

AIG will receive an upfront payment of $9.8 billion plus accrued interest from NICO. However, AIG retains the risk for the first $25 billion of covered losses and the risk of collecting from its own third-party reinsurers. NICO's coverage is limited to $20 billion.

The Berkshire Hathaway parent guarantee is a crucial element as it provides a strong backing for NICO's obligations under the reinsurance agreement. This significantly reduces the counterparty risk for AIG and its subsidiaries, ensuring the security of the reinsurance coverage.

Yes, AIG retains sole responsibility for claims handling and adjudication. While NICO has certain access, association, and consultation rights, AIG remains in control of the claims process.