Buffett to Get $650 Million From Hartford in Asbestos Dealby
Hartford to take $423 million charge on reinsurance accord
Berkshire adds to asbestos portfolio built over past decade
Warren Buffett’s Berkshire Hathaway Inc. agreed to take on asbestos risk from Hartford Financial Services Group Inc. in a deal that will generate a $650 million premium for his company.
Berkshire’s National Indemnity subsidiary will provide as much as $1.5 billion of reinsurance beyond the $1.7 billion of loss reserves as of Dec. 31, according to a statement Tuesday from Hartford, which is based in the Connecticut city of the same name.
Buffett, 86, and his reinsurance lieutenant Ajit Jain have been taking on asbestos liabilities from insurers including Liberty Mutual Holding Co., CNA Financial Corp. and American International Group Inc. Those companies were burned by higher-than-expected legal costs and fluctuations in quarterly results that can discourage investors. Omaha, Nebraska-based Berkshire, with a diversity of operations and Buffett’s long-term approach, welcomes the risk transfers because they give the billionaire more reserves that he can reinvest.
“Hartford will be able to produce much better ongoing results, without the drag from these old policies,” David Havens, an analyst at Imperial Capital, said in a note. “Not a bad thing.”
Hartford said the deal is expected to reduce fourth-quarter 2016 earnings by about $423 million. The company was advised on the deal by the law firm of Mayer Brown LLP.
Chief Executive Officer Chris Swift and his predecessor Liam McGee have been narrowing Hartford’s focus for years as they work to minimize risk and simplify operations. The company announced a deal last year to sell U.K. operations with $1 billion of assets to Catalina Holdings to exit risks tied to asbestos and environmental policies issued more than two decades ago.
The Berkshire agreement “reduces uncertainty,” Hartford Chief Financial Officer Beth Bombara said in the statement. “Our asbestos and environmental exposures have generated adverse loss reserve development over time, creating uncertainty for investors and others about the ultimate cost of these policy liabilities, most of which were underwritten prior to 1985.”
Swift is focusing on U.S. property-casualty coverage, insurance for individuals and mutual funds. His company announced a plan in 2012 to sell a life insurer to Prudential Financial Inc. and agreed the next year to sell a U.K. variable annuity unit to Berkshire.
Hartford will continue to handle claims on the contracts that are being transferred to Berkshire. That contrasts with the Liberty Mutual and AIG asbestos deals, when National Indemnity took on that responsibility.
Berkshire climbed 0.7 percent to $245,850 at 4:15 p.m. in New York, after rallying 23 percent last year. Hartford advanced 0.2 percent Tuesday and 9.6 percent in 2016. Swift’s company said it expects to maintain its 2017 plan for share repurchases.