Liberty Mutual pays $3 billion for Berkshire backstop coverage

The carrier agreed to pay $3 billion to Buffet’s juggernaut for a $6.5 billion backstop relating to asbestos and environmental obligations.

Workers Comp


Feeling pressure from its obligations to asbestos and environmental policies, Liberty Mutual Holding Cos. agreed to pay $3 billion for a $6.5 billion backstop from Warrant Buffett’s Berkshire Hathaway this week.

The Omaha-based carrier transferred billions of dollars in asbestos risk from insurers like AIG and CAN Financial to Berkshire.

The move was a smart one for Buffet’s company, said Morningstar Inc. analyst Greggory Warren.

“So far, it’s been a decent deal. Asbestos is very long-tailed, so the ultimate issue will be how much the payouts end up being,” Warren told Bloomberg.

The transaction provides “combined aggregate adverse development cover for substantially all of Liberty Mutual Insurance's U.S. workers compensation, asbestos and environmental liabilities, attaching at approximately $12.5 billion of combined aggregate reserves with an aggregate limit of $6.5 billion,” according to Liberty Mutual.

“We believe that this agreement further strengthens our financial position as it eliminates a substantial source of uncertainty in these liabilities and allows us to focus on execution in our core businesses,” said Liberty Mutual Chairman and CEO David Long.

The deal comes as the workers’ comp market faces growing medical costs and low interest rates, which harm carrier revenue. In fact, carriers operating in workers’ comp have posted overall losses since 2007, the NCCI says.

Coverage will be considered retroactive reinsurance, and will result in a pre-tax loss of roughly $130 million as of the effective date. That will be considered in third-quarter results, Liberty Mutual said.


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