* CNA to pay Buffett's National Indemnity $2 billion fee
* $1.6 billion asbestos, pollution claims transferred
* CNA expects to incur $375 million loss
* Shares of Berkshire, CNA fall
(Adds analyst comment)
By Jonathan Stempel
NEW YORK, July 15 Warren Buffett's Berkshire
Hathaway Inc (BRKa.N) (BRKb.N) will take over asbestos and
environmental pollution risks now held by CNA Financial Corp
(CNA.N) in exchange for a $2 billion fee.
Berkshire's National Indemnity Co unit will take over $1.6
billion of net liabilities retroactive to Jan. 1 and assume
responsibility to handle claims, CNA said. The accord has a $4
billion limit and gives National Indemnity the right to collect
$200 million of receivables.
CNA, the seventh-largest U.S. commercial insurer, is 90
percent-owned by conglomerate Loews Corp (L.N).
Berkshire's size lets Buffett take on insurance risks, such
as hurricanes and terrorism, from other companies in exchange
for upfront payments that he can invest elsewhere.
Buffett "understands insurance risks well, and can use the
'float' from the $2 billion to boost investment returns,
perhaps before any claims would need to be paid," said Brian
Schneider, a senior director at Fitch Ratings. "For CNA,
transferring risk gives it more certainty."
In 2006, Berkshire took on $7.1 billion of claims from the
Equitas affiliate of Lloyd's of London [LOL.UL], which Buffett
said was created to handle asbestos claims and a "tidal wave"
of environmental and product claims dating from the 1980s.
Insurance typically accounts for half of Berkshire's
results, though Buffett has in recent years expanded in
railroads, energy and industrial goods.
Asbestos exposure has long been a problem for insurers.
While many companies had stopped using asbestos for
fireproofing and insulation by the mid-1970s after it was
linked to cancer and other diseases, litigation persists
because after-effects from exposure to the substance can take
decades to surface.
CNA said it expected to incur a $375 million after-tax loss
when the Berkshire transaction closes later this quarter.
Chief Executive Thomas Motamed said in a statement that the
transaction would "effectively eliminate a significant source
of uncertainty" for the Chicago-based company.
Loews said it expects to realize a $340 million loss,
reflecting its 90 percent stake in CNA.
An assistant to Buffett had no immediate comment. National
Indemnity did not return a request for comment. Both companies
are based in Omaha, Nebraska. Loews is based in New York.
In its annual report, CNA said it had incurred $155 million
of additional asbestos and environmental pollution exposure in
2009, citing larger claims, increased trial activity and
changes in case law.
It said trends might worsen because lawyers who once sued
companies that are now bankrupt seek out other targets, while
court rulings on pollution claims have been "inconsistent."
Buffett, 79, is the world's third-richest person, according
to Forbes magazine, and has run Berkshire since 1965.
Berkshire has about 80 operating businesses and tens of
billions of dollars of common stock investments. It ended March
with $25.67 billion of cash.
National Indemnity is overseen by Ajit Jain, whom analysts
believe could succeed Buffett as Berkshire's chief executive.
Jain put together the Equitas transaction, and Buffett told
shareholders in a February 2007 letter that despite uncertainty
over the timing and size of potential claims arising from it,
"Ajit and I think the odds are in our favor."
In morning trading, CNA shares fell 9 cents to $27.13;
Loews shares fell 18 cents to $36.00; Berkshire Class A shares
fell $570 to $118,450; and Berkshire Class B shares fell 38
cents to $78.97.
(Reporting by Jonathan Stempel; Editing by Lisa Von Ahn and