Mega deal between AIG and Berkshire Hathaway prompts concern

Risk transfer deal between US giants sparks fears over whether claims will be met

Mega deal between AIG and Berkshire Hathaway prompts concern

Insurance News

By Paul Lucas

On Friday we brought you news of a $9.8 billion pact being struck between two of the giants of US insurance, American International Group (AIG) and Warren Buffett’s Berkshire Hathaway (see article). However, now concerns have been raised about what the deal means for claim payouts.

As part of the agreement, AIG will pay around $9.8 billion to Berkshire subsidiary National Indemnity Company (Nico), with the US’s biggest insurer by market value to receive backstop protection on workers’ compensation, as well as other corporate policies.

However, according to a Financial Times report, the deal could put Berkshire “on the hook” for as much as $20 billion in insurance payouts depending on the size of future claims and lawyers representing companies who are in dispute about policy coverage raised concerns to the publication that such arrangements could make it increasingly possible for legitimate claims to be rejected.

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Speaking to the publication, Robin Cohen, the head of McKool Smith’s insurance recovery practice, commented that “the concern is we’re going to have to litigate more and more for claims that are clearly covered,” while Ann Kramer, a partner at Reed Smith, noted that insurance customers had already been “burnt so often” by similar deals leading to claims going unpaid.

However, in a statement announcing the deal AIG noted that it will retain “sole authority to handle and resolve claims” with Nico having “various access, association and consultation” rights.

Still, several lawyers are urging caution with Richard Mattick, a partner at Covington, telling the Financial Times that the deal merits “close monitoring” and that policyholders should see “how claims are handled under the new deal” and ensure they “have options for recourse should claims not be handled properly.”

The agreement relates to a significant proportion of AIG’s “long-tail” exposures and is thought to be around six times larger than a similar deal between AIG and Berkshire struck back in 2011.

Related stories:
AIG and Berkshire Hathaway strike $9.8 billion pact
AIG in talks over post-Brexit move away from London

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