Agreement furthers strategy to optimize capital efficiency
Cedes 80% of reserve risk on substantially all U.S. Commercial
long-tail exposures for accident years 2015 and prior, representing
carried reserves of approximately $34 billion, net of discount as of
January 1, 2016
Maintains control of claims handling and commitment to serving our
NEW YORK--(BUSINESS WIRE)--Jan. 20, 2017--
American International Group, Inc. (NYSE:AIG) today announced that it
has entered into a binding term sheet for an adverse development
reinsurance agreement, effective January 1, 2016, with National
Indemnity Company (NICO), a subsidiary of Berkshire Hathaway Inc. The
agreement covers 80% of substantially all of AIG’s U.S. Commercial
long-tail exposures for accident years 2015 and prior, which includes
the largest part of AIG’s U.S. casualty exposures during that period.
AIG will retain sole authority to handle and resolve claims, and NICO
has various access, association and consultation rights.
“This decisive step enables us to focus firmly on the future and build
on the progress we’ve made in transforming AIG,” said Peter D. Hancock,
AIG President and Chief Executive Officer. “The agreement supports our
stated strategy and gives us additional risk capacity to serve our
clients and return capital to shareholders.”
The consideration for this agreement is $9.8 billion payable in full by
June 30, 2017, with interest at 4% per annum from January 1, 2016 to
date of payment. The consideration paid to NICO will be placed into a
collateral trust account as security for NICO’s claim payment
obligations to the AIG operating subsidiaries, and Berkshire Hathaway
will provide a parental guarantee to secure the obligations of NICO
under the agreement.
NICO is assuming 80% of the net losses and net allocated loss adjustment
expenses on the subject reserves in excess of the first $25 billion and
NICO’s overall limit of liability under the agreement is $20 billion.
This provides material protection to policyholders against adverse
developments beyond current reserve levels.
AIG’s fourth quarter reserve review is being finalized and the results
of this review will be included in the company’s year-end financial
results. AIG currently expects a material prior year adverse development
charge in the fourth quarter.
The agreement will be accounted for in the first quarter of 2017 as a
retroactive reinsurance agreement. AIG will recognize a loss or a
deferred gain at inception of the agreement equal to the difference
between the consideration paid and the ceded reserves as of December 31,
2016. Had this agreement been entered into on January 1, 2016, AIG would
have recognized a loss of approximately $2.9 billion, based on carried
reserves of approximately $34 billion, net of discount at that
time. This loss would be reduced by AIG’s expected reinsurance
recoveries from NICO’s 80% share of any 2016 calendar year adverse prior
year development covered by the contract. If that share exceeds $2.9
billion, then a deferred gain is established, which will be amortized
into the income statement in line with expected cash reinsurance
recoveries from NICO.
The closing of the transaction contemplated by this agreement is subject
to receipt of any required regulatory approvals, execution of definitive
transaction documentation and satisfaction of other conditions.
# # #
American International Group, Inc. (AIG) is a leading global insurance
organization. Founded in 1919, today AIG member companies provide a wide
range of property casualty insurance, life insurance, retirement
products, and other financial services to customers in more than 100
countries and jurisdictions. These diverse offerings include products
and services that help businesses and individuals protect their assets,
manage risks and provide for retirement security. AIG common stock is
listed on the New York Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com
| YouTube: www.youtube.com/aig
| Twitter: @AIGinsurance | LinkedIn: www.linkedin.com/company/aig.
These references with additional information about AIG have been
provided as a convenience, and the information contained on such
websites is not incorporated by reference into this press release.
AIG is the marketing name for the worldwide property-casualty, life and
retirement, and general insurance operations of American International
Group, Inc. For additional information, please visit our website at www.aig.com.
All products and services are written or provided by subsidiaries or
affiliates of American International Group, Inc. Products or services
may not be available in all countries, and coverage is subject to actual
policy language. Non-insurance products and services may be provided by
independent third parties. Certain property-casualty coverages may be
provided by a surplus lines insurer. Surplus lines insurers do not
generally participate in state guaranty funds, and insureds are
therefore not protected by such funds.
This press release contains “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements reflect AIG’s current views with respect to
future events and are based on assumptions and are subject to risks and
uncertainties, including completion of the year end audit process.
Except for AIG’s ongoing obligation to disclose material information as
required by federal securities laws, it does not intend to provide an
update concerning any future revisions to any forward-looking statements
to reflect events or circumstances occurring after the date hereof.
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Source: American International Group, Inc.
American International Group, Inc.