Berkshire Hathaway, with its $7 billion deal to take overLloyd's Equitas operation, is gambling that the move will beprofitable because it has extensive background in handling asbestosclaims, according to a brokerage expert.

The move, which analysts greeted positively today, will seeEquitas--Lloyd's runoff operation for asbestos and other long-termexposures--buying $7 billion in reinsurance from the Berkshiresubsidiary National Indemnity Company, which will run itsoperations.

Besides providing the reinsurance for all Equitas' liabilitiesNational Indemnity will take on the staff and operations of Equitasand conduct the run-off of Equitas' liabilities.

Paul Little, executive vice president and chief brokerageofficer of Holborn Corporation, a reinsurance brokerage, saidBerkshire has substantial background in the area of asbestos claimsbecause it had purchased Johns Manville, a major manufacturer ofasbestos products in 2001 before asbestos injury claims soared outof control.

"Berkshire has a lot of information about the asbestos world andenvironmental claims. They can leverage that. They're betting theycan settle claims more efficiently than what Equitas is able todo," Mr. Little explained.

This is good news for Holborn clients that trade with Lloyd's,he said, because while the market has always claimed that Equitas"ring fenced" Lloyd's exposures, "there's always been some doubtsabout the quality of security." The move, he added, will likelyattract new capital to Lloyd's.

Don Thorpe, senior insurance analyst for Fitch Ratings, whichput Lloyd's on 'A' ratings Watch Positive as a result of the deal,agreed that in addition to a strong knowledge of asbestos throughJohns Manville, Berkshire has done similar transactions withinsurance units.

He noted they had written coverage for a Cigna subsidiary withlong term obligations that was purchased by Ace in 1999 and theyrecently bought Swiss reinsurer Converium's U.S. Operation whichwas in runoff with a lot of longtailed business.

The deal takes the [Equitas claims] overhang away from Lloyd'shead, said Mr. Thorpe.

Fitch noted that the Berkshire-Equitas deal establishes avehicle to reinsure and run-off the 1992 and prior-years'liabilities of Lloyd's members.

Berkshire will reinsure all of Equitas' liabilities and provideup to $7 billion in reinsurance protection above Equitas'undiscounted reserves, which stood at $8.7 billion in the firstquarter of this year.

The companies said the transaction will occur over two phases.In phase one, Berkshire will provide $5.7 billion in reinsuranceprotection to Equitas and take on the staff, operations andmanagement of the run-off of Equitas. Phase two will result in thetransfer of Lloyd's members' pre-1993 liabilities into Equitas or aUK-based subsidiary of Berkshire and the provision of additionalreinsurance protection of up to $1.3 billion.

Lloyd's will make a contribution of $169 million towards thepremium paid to Berkshire for the reinsurance protection underphase one and phase two of the transaction.

The transaction is subject to various regulatory and legalapprovals.

Standard & Poor's Ratings Services said today it revised topositive from stable the outlook on the U.K.-based Lloyd'sinsurance market and on The Society of Lloyd's. At the same time,the 'A' insurer financial strength ratings on Lloyd's wereaffirmed, as well as the 'A' counterparty credit rating on TheSociety of Lloyd's.

Based upon what has been disclosed to-date, the Equitas deal"may remove any realistic potential for reserve inadequacy atEquitas Ltd. to undermine confidence in Lloyd's--in particular,amongst clients, brokers, and capital providers," said Standard& Poor's credit analyst Marcus Rivaldi.

"Any move that has the potential to strengthen the view ofLloyd's security is a positive and the fact the two major insuranceentities in the U.S. and London are working together to find asolution has to be a boost for the industry," said Bill Adamson,chief executive officer of US operations for Carvill, the specialtyreinsurance intermediary.