NEW YORK: AIG will pay billionaire Warren Buffett's Berkshire Hathaway $1.65 billion to take on commitments to compensate asbestos victims, the Security and Exchange Commission said Thursday.
The insurer will unload some $3.5 billion of potential claims still held by its Chartis subsidiary even though it stopped insuring asbestos, a carcinogen once widely used in building insulation, more than 20 years ago.
AIG had to set aside $1.3 billion in the fourth quarter of 2010 for potential claims, alarming potential investors.
The insurance giant, which has been under state control since its near-bankruptcy in 2008, said the latest transaction would result in a gain before taxes of around $200 million in the second quarter.
The deal will further stabilize AIG's balance sheets and make it easier for the government -- which owns 92 percent of the insurer -- to unload some of its stake in the firm.
The agreement increases Buffett's exposure to potential asbestos losses, but he can invest the funds before the claims come due and could also profit if the liabilities turn out to be less than expected.
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