AIG expects its fourth-quarter financial results to include an “adverse development charge” due to a reinsurance agreement with Berkshire Hathaway-owned National Indemnity Company, announced last month.

The retroactive deal is backdated to January 1 last year, with the Berkshire subsidiary covering 80% of AIG’s US commercial long-tail exposures for accident years 2015 and prior.

“AIG’s fourth-quarter reserve review is being finalised and the results of this review will be included in the company’s year-end financial results,” the insurer says. “AIG currently expects a material prior-year adverse development charge in the fourth quarter.”

It will pay $US9.8 billion ($12.83 billion) by June 30, with the consideration placed into a collateral trust account as security for the Berkshire subsidiary’s claim payment obligations to AIG operating units. Berkshire Hathaway will provide a parental guarantee to secure the obligations of its subsidiary.

The subsidiary’s overall limit of liability is $US20 billion ($26.19 billion).

“This decisive step enables us to focus firmly on the future and build on the progress we’ve made in transforming [the company],” AIG CEO and President Peter Hancock said.

“The agreement supports our stated strategy and gives us additional risk capacity to serve our clients and return capital to shareholders.”

AIG’s results will be released next week.

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