Berkshire To Reinsure $7B Of Equitas

o Take on the staff and operations of Equitas and conduct the run-off of Equitas' liabilities.

The transaction will occur in two phases, the companies said, and if they are completed as planned underlying policyholders will have the benefit of up to an additional $7 billion of reinsurance cover, nearly doubling assets available for the Equitas run-off, the companies said.

Standard & Poor's Ratings Services reacted to the transaction by announcing it had revised to positive from stable the outlook on Lloyd's insurance market and on The Society of Lloyd's. At the same time, the "A" insurer financial strength ratings on Lloyd's were affirmed, as well as the "A" counterparty credit rating on The Society of Lloyd's.

In phase one, National Indemnity Company will provide reinsurance cover to Equitas of $5.7 billion over and above the March 31 reserves ($8.7 billion ) of Equitas less adjustment for payments and recoveries since that date. The premium payable to National Indemnity Company will be: all of Equitas' assets less ?172 million ($324 million at current exchange rates) and a contribution of ?72 million ($136 million) from the Corporation of Lloyd's.

In this phase, the staff and operations of Equitas and the management of the run-off will all pass to an English subsidiary of Berkshire Hathaway, it was explained.

Phase two of the transaction will involve Equitas seeking approval of the High Court to transfer all the liabilities of Reinsured Names into Equitas or a subsidiary of Berkshire Hathaway.

If such a business transfer occurs before the end of 2009, National Indemnity Company will provide up to $1.3 billion of additional reinsurance cover for a further premium of up to ?40 million ($75.4 million). At the time of any such business transfer, or on Dec. 31, 2009 if a transfer has not occurred, Lloyd's will provide a further contribution of ?18 million ($33.9 million).

The firms said that the U.K.'s Financial Services Authority has been kept informed of the progress of this transaction and completion is subject to various conditions including approvals which must be obtained before March 31, 2007 from the FSA, regulatory authorities in the United States and the Equitas Trustees.

Both contributions from Lloyd's are also subject to approval by an Extraordinary General Meeting of the current membership of Lloyd's before March 31, 2007.

The companies said they expect that when phase one is implemented, a small return premium will be paid to Reinsured Names. Any return premium will be paid to Names pro rata to their Equitas premium.

Hugh Stevenson Equitas Chairman, said: "This is wonderful news for Reinsured Names. Equitas has achieved a great deal since it was set up in 1996, but we still face many threats and uncertainties.

"This agreement with one of the world's largest insurance groups will transform the outlook for Equitas and for Reinsured Names. The $5.7 billion of extra cover will dramatically improve the financial position of Equitas. We believe that following the completion of phase one Reinsured Names will be able to regard the prospect of the failure of Equitas as extremely remote."

"If, as we hope, a transfer of the liabilities from Reinsured Names is achieved, they will no longer have any liability whatsoever under policies reinsured by Equitas. They will have achieved finality and be able to sleep soundly knowing that this chapter is closed."

Scott Moser, Equitas' chief executive officer added: "This deal represents the validation of our decade-long strategy of reducing the size and volatility of Equitas to the point that we could achieve a transformational event of this kind to provide real security to Reinsured Names."

Warren Buffett, Berkshire Hathaway chairman, said Equitas' "skill in resolving complicated and contentious matters allows the transaction announced today. Much, however, remains to be done. Putting Berkshire Hathaway's Gibraltar-like strength behind the remaining problems, which will take many decades to resolve, eliminates any remaining worries for all concerned."

Lloyd's Chairman, Lord Levene, said the additional protection from the deal "is very valuable to Names who were originally reinsured by Equitas and who will now achieve finality post transfer."

"Despite the outstanding performance of Equitas since its inception, the rating agencies sometimes cite it as having a potentially negative impact on the market's ongoing financial strength. The successful completion of this transaction should end that once and for all," commented Lloyd's CEO Richard Ward.

According to the companies, Equitas Trust will continue to provide a measure of oversight of the management of the run-off of Equitas' liabilities until the Names have achieved a court order releasing all liabilities. The premium payable for the Phase II reinsurance, the future costs of the Equitas Trust, other costs of running Equitas and any payments to Reinsured Names will be paid out of the assets remaining with Equitas.

The Equitas Trust, said it will be making arrangements for briefing Reinsured Names.

Equitas, was established to reinsure and run-off the 1992 and prior years' non-life liabilities of Names, or Underwriters, at Lloyd's of London, including multi-million dollar asbestos injury claims against a number of U.S. firms, which Equitas over the years has been in the process of settling.