Berkshire Hathaway and Equitas Announce Deal to End Liabilities Haunting Lloyd's

The deal, which has been in the making since the 1980s, aims to end the liabilities of Lloyd's and its individual investors, providing as much as $7 billion of coverage. Equitas, the liability run-off reinsurer of Lloyd's of London, has agreed to reinsure all of its liabilities with National Indemnity Co., a subsidiary of Berkshire Hathaway Inc. This transaction will end the liabilities both of Lloyd's and of Lloyd's Names, private investors in the London-based market, under policies reinsured by Equitas.

Key Takeaways:

• The deal between Berkshire Hathaway's National Indemnity Co. and Equitas will provide as much as $7 billion of coverage to Lloyd's and its individual investors.
• The transaction will end the liabilities of Lloyd's and its individual investors, including those related to asbestos liability.
• Warren Buffett, chairman of Berkshire Hathaway, has stated that Equitas has been "equal to the task" of reinsuring Lloyd's Names and preserving the reputation of the London market since its inception in 1996.
• Richard Ward, Lloyd's chief executive officer, has said that Equitas' performance has always been "outstanding," but the runoff effort has been dogged by the views of rating agencies.
• The transaction will proceed in two phases, with National Indemnity providing reinsurance of $5.7 billion for Equitas above Equitas' reserves as of March 31, 2006.
• Hugh Stevenson, chairman of Equitas, has stated that the deal will "dramatically improve the financial position" of Equitas and make the prospect of Equitas' failure "extremely remote" for reinsured Names.

Statistics:

• $7 billion: The amount of coverage provided by National Indemnity Co. to Lloyd's and its individual investors.
• $5.7 billion: The reinsurance provided by National Indemnity Co. to Equitas above Equitas' reserves as of March 31, 2006.
• $8.7 billion: The reserves of Equitas as of March 31, 2006.
• 1,500: The number of Names in the Lloyd's market, down from its peak of around 34,000.
• $324 million: The amount of premium payable to National Indemnity Co. from Lloyd's and its individual investors.
• 18 million pounds: The contribution of the Corporation of Lloyd's to the deal.
• 1 billion pounds: The amount of compensation sought by 1,000 Names in the United Kingdom's High Court in a lawsuit against the U.K. Treasury.

Sources:

• A.M. Best Co.
• Berkshire Hathaway Inc.
• Equitas
• Lloyd's of London
• National Indemnity Co.
• The U.K. Treasury
• The Corporation of Lloyd's
• The Association of Lloyd's Members
• Reuters
• Bloomberg