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Berkshire Assumes Absestos Liability Claims After CNA Agrees to Pay $2B

Posted on 15 Jul 2010

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Warren Buffett’s Berkshire Hathaway Inc. agreed to assume liabilities tied to asbestos and pollution claims from commercial insurer CNA Financial Corp. in exchange for a $2 billion fee.

The deal is expected to be completed this quarter, Chicago-based CNA said today in a statement, and the company expects a loss of about $375 million on the reinsurance transaction.

Mr. Buffett is willing to take on the risk of claims that could take years to resolve in exchange for fee income and access to insurance reserves that he can invest. In 2006, Omaha, Neb.-based Berkshire agreed to assume asbestos risks previously held by Lloyd’s of London investors in exchange for about $7 billion. The insurers that cede risk can refocus on selling new policies.

“This transaction is consistent with our focus on financial stability and delivering improved levels of operating consistency as we effectively eliminate a significant source of uncertainty from these legacy liabilities,” Thomas Motamed, CNA’s CEO, said in the statement.

Berkshire’s National Indemnity Co. will take on about $1.6 billion in liabilities with a limit set at $4 billion on the risk. Mr. Buffett’s firm will assume responsibility for handling claims and will be able to collect reinsurance from third parties with a book value of about $200 million.