Tuesday, November 27, 2007

Breaking Down Berkshire's Equitas Deal

Emil Lee: Can you walk us through the economics of the Equitas deal?

Marc Mayerson: Under the deal, [Berkshire subsidiary] National Indemnity will reinsure all of Equitas' liabilities and provide a further $7 billion of reinsurance coverage for Equitas. Equitas has [loss] reserves presently of $8.7 billion (as of March 31, 2006), and National Indemnity will commit an additional $5.7 billion of reinsurance capacity.

Once Equitas pays out $8.7 billion in future losses -- which will probably take a couple of decades -- Berkshire is on the hook for an additional $7 billion of coverage.

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