The Hartford said it has sealed a sizable reinsurance agreement covering some asbestos and environmental liability reserves with Berkshire Hathaway subsidiary National Indemnity Company.

Plans call for The Hartford to pay reinsurance premiums of $650 million, and the agreement provides aggregate limits of up to $1.5 billion for adverse net loss reserve development above estimated net loss reserves of $1.7 billion as of Dec. 31, 2016.

The Hartford said it will still handle claims, subject to certain conditions, and will keep the risk of recoveries under third-party reinsurance contracts for these exposures. While the deal covers potential adverse development on The Hartford’s existing asbestos and environmental reserves as of Dec. 31, it excludes those held by the company’s U.K. property and casualty run-off subsidiaries, which The Hartford is under contract to sell and expects to close in the first quarter of 2017, the insurer said.

The Hartford Chief Financial Officer Beth Bombara explained that the deal addresses cost uncertainty created by the insurer’s asbestos and environmental exposures, which have generated “adverse loss reserve development over time” and generally data back to 1985.

National Indemnity Company “is a very strong counterparty, and this agreement reduces uncertainty about potential adverse development while allowing us to continue to handle both claims and reinsurance recoveries, which we believe will enable us to achieve the best possible resolution for these long-tail exposures,” Bombara said in prepared remarks.

The Hartford plans to count the deal in its fourth-quarter 2016 financial statements as a retroactive reinsurance agreement, resulting in a $423 million after-tax charge against Q4 net income. The insurance premium will have a slightly negative impact on 2017 P/C net investment income, according to the insurer, though it won’t affect The Hartford’s plan to continue with its previously announced 2017 capital management plan, which includes $1.3 billion in share repurchases.

Source: The Hartford