8-KMaterial AgreementsRegulation FDExhibits & Filings

HARTFORD INSURANCE GROUP, INC. 8-K Report, Material Agreement (Jan 3, 2017)

Filed January 3, 2017For Securities:HIGHIG-PG

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.

Frequently Asked Questions

The primary purpose is to transfer a significant portion of the risk associated with adverse development of the company's historical asbestos and environmental (A&E) reserves to National Indemnity Company (NICO), a Berkshire Hathaway subsidiary. This aims to reduce future financial volatility and uncertainty related to these long-tail liabilities.

The Hartford paid a reinsurance premium of $650 million to NICO. The transaction is expected to result in an after-tax loss of approximately $423 million in the fourth quarter of 2016, primarily due to the accounting treatment of retroactive reinsurance.

The agreement covers adverse development on substantially all of The Hartford's asbestos and environmental (A&E) reserves, with specific exclusions for reserves held by its UK Property and Casualty run-off subsidiaries (which are under contract to be sold) and other non-U.S. operations with less than $3 million in A&E reserves.

Yes, The Hartford retains responsibility for claims handling and other administrative services related to these reserves, subject to certain conditions stipulated in the agreements.