Berkshire Hathaway, the massive holding company controlled by the stock market billionaire Warren Buffett, is to put-up up to $7 billion to cover insurance claims sold by Lloyd's of London previous to 1993.
The deal is with Equitas, the company set up in 1996 specifically to reinsure the liabilities accumulated by Lloyd’s of London dating as far back as the 1930s and up to 1993. Equitas was established after heavy claims, primarily related to asbestos, threatened to drag Lloyd’s of London into bankruptcy.
When Equitas was originally formed, it had a huge GBP15 billion in liabilities, which it has managed to reduce to GBP4 billion. However, there were fears that Equitas would eventually run out of money, forcing the 28,000 wealthy people who originally underwrote the Lloyd’s of London policies to pay off the liabilities from their own pockets.
The new deal with Berkshire Hathaway relieves these investors, known as ‘Names’, of their liability – potentially saving many from ruin.
According to a report on the online edition of The Guardian newspaper, Equitas and Lloyd’s will pay GBP398 million to buy a $7 billion reinsurance policy from Berkshire Hathaway subsidiary National Indemnity Company.
Hugh Stevenson, chairman of Equitas, is quoted in the Guardian report as saying: If, as we hope, the transfer of liabilities from the reinsured Names is achieved, they will no longer have any liability whatsoever under policies reinsured by Equitas. They have achieved finality and will be able to sleep soundly knowing that this chapter is closed.