Liberty Mutual has paid $US3 billion ($3.2 billion) to Berkshire Hathaway to increase its reinsurance cover by $US6.5 billion ($6.9 billion).

The deal provides reinsurance for US workers’ compensation, and asbestos and environmental liabilities.

“We believe this agreement further strengthens our financial position because it eliminates a substantial source of uncertainty in these liabilities and allows us to focus on execution in our core businesses,” Liberty Mutual Insurance Chairman and CEO David Long said.

Liberty Mutual cedes about $US3.3 billion ($3.5 billion) of existing liabilities under the agreement, while Berkshire Hathaway’s National Indemnity Company will provide an extra $US3.2 billion ($3.4 billion) for adverse developments.

The asbestos and environmental liabilities cover is for policies from before 2005, while the workers’ compensation deal relates to injuries or accidents before this year.

National Indemnity will assume responsibility for handling asbestos and environmental claims, while Liberty Mutual will continue to handle workers’ compensation claims.

Standard & Poor’s has raised its ratings on Liberty Mutual Insurance to A from A- and improved its outlook to stable following the deal.

It says the agreement covers potentially volatile US asbestos and environmental liabilities and reduces risks from future adverse reserve developments.

Liberty Mutual says the deal will be accounted for as retroactive reinsurance and its third-quarter results will include a pre-tax loss of about $US130 million ($138 million).