Summary
The Hartford Financial Services Group, Inc. (HIG) announced a significant reinsurance agreement through its subsidiary, Hartford Fire Insurance Company, with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. This "Aggregate Excess of Loss Reinsurance Agreement," effective December 31, 2016, provides $1.5 billion in reinsurance coverage for adverse net loss reserve development exceeding the company's existing asbestos and environmental (A&E) reserves as of year-end 2016. In exchange for this coverage, HIG paid a reinsurance premium of $650 million to NICO. The transaction, accounted for as retroactive reinsurance, is expected to result in a significant after-tax loss of approximately $423 million in the fourth quarter of 2016. Despite the immediate financial impact, this agreement aims to mitigate future volatility and potential financial strain associated with historical A&E liabilities, transferring a substantial portion of this long-tail risk to Berkshire Hathaway.
Key Highlights
- 1Hartford entered into a $1.5 billion aggregate excess of loss reinsurance agreement with Berkshire Hathaway's NICO.
- 2The agreement covers adverse development on substantially all of HIG's asbestos and environmental (A&E) reserves, excluding UK run-off subsidiaries and certain non-U.S. operations.
- 3A reinsurance premium of $650 million was paid by Hartford to NICO.
- 4The transaction is accounted for as retroactive reinsurance.
- 5An after-tax loss of approximately $423 million is expected in the fourth quarter of 2016 due to this agreement.
- 6Berkshire Hathaway is providing a parental guarantee to secure NICO's obligations.
- 7Hartford retains responsibility for claims handling and administrative services.