On July 17, 2014, Liberty Mutual Insurance reached a definitive agreement with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc., on a 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.
At the closing of this transaction today, but effective as of January 1, 2014, Liberty Mutual Insurance ceded approximately $3.3 billion of existing liabilities under a retroactive reinsurance agreement. NICO will provide approximately $3.2 billion of additional aggregate adverse development cover. Liberty Mutual Insurance paid NICO total consideration of approximately $3.0 billion.
The agreement covers Liberty Mutual Insurance’s potentially volatile U.S. asbestos and environmental liabilities arising under policies of insurance and reinsurance with effective dates before January 1, 2005, as well as Commercial Insurance’s workers compensation liabilities as respects injuries or accidents occurring before January 1, 2014.
NICO will assume responsibility for claims handling related to Liberty Mutual Insurance’s asbestos and environmental claims. Liberty Mutual Insurance will continue to handle all workers compensation claims.
"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 David H. Long, Liberty Mutual Insurance Chairman and Chief Executive Officer.
This transaction will be accounted for as retroactive reinsurance in Liberty Mutual Insurance’s GAAP consolidated financial statements and results in a pre-tax loss of approximately $130 million as of the effective date, which will be included in third quarter results.
TigerRisk Partners and Skadden, Arps, Slate, Meagher & Flom LLP acted as advisors to Liberty Mutual Insurance.
About Liberty Mutual Insurance
Boston-based Liberty Mutual Insurance is a diversified global insurer and third largest property and casualty insurer in the U.S. based on 2013 direct written premium. The Company also ranks 76th on the Fortune 100 list of largest corporations in the U.S. based on 2013 revenue. As of December 31, 2013, LMHC had $121.282 billion in consolidated assets, $102.270 billion in consolidated liabilities, and $38.509 billion in annual consolidated revenue.
LMHC, through its subsidiaries and affiliated companies, offers a wide range of property-casualty insurance products and services to individuals and businesses alike. In 2001 and 2002, the Company formed a mutual holding company structure, whereby the three principal mutual insurance companies, Liberty Mutual Insurance Company, Liberty Mutual Fire Insurance Company and Employers Insurance Company of Wausau, each became separate stock insurance companies under the ownership of LMHC.
Functionally, the Company conducts substantially all of its business through strategic business units, with each operating independently of the others with dedicated sales, underwriting, claims, actuarial, financial and certain information technology resources. Management believes this structure allows each business unit to execute its business strategy and/or to make acquisitions without impacting or disrupting the operations of the Company’s other business units.
LMHC employs more than 50,000 people in approximately 900 offices throughout the world. For a full description of the Company’s business operations, products and distribution channels, please visit Liberty Mutual’s Investor Relations web site at www.libertymutual.com/investors.
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Richard Angevine, 617-574-6638