(Reuters) - A unit of Warren Buffett's Berkshire Hathaway Inc. will take over asbestos and environmental pollution liabilities now held by CNA Financial Corp. in exchange for a $2 billion fee.
CNA, which is 90 percent owned by conglomerate Loews Corp., said Berkshire's National Indemnity Co unit would take over $1.6 billion of net liabilities, retroactive to Jan. 1, and assume responsibility to handle claims.
The agreement has a $4 billion limit, and covers credit risk on third-party reinsurance tied to the liabilities. CNA is also transferring the right to $200 million of receivables.
Thomas Motamed, chief executive officer of Chicago-based CNA, said in a statement that the transaction would "effectively eliminate a significant source of uncertainty" for the nation's seventh-largest commercial insurer.
CNA said it expected to incur a $375 million after-tax loss when the transaction closes later this quarter.
Berkshire and National Indemnity, both based in Omaha, Nebraska, did not immediately return requests for comment.
National Indemnity is overseen by Ajit Jain, whom analysts believe may be one of the top candidates to eventually succeed Buffett as Berkshire's CEO.
Insurance typically accounts for half of Berkshire's results, and the company's size often lets Buffett take on insurance exposure, including to hurricanes and terrorism, in exchange for upfront payments that he can invest elsewhere.
In 2006, Berkshire took on $7.1 billion of claims from the Equitas affiliate of Lloyd's of London, which Buffett said was created to handle asbestos claims and a "tidal wave" of environmental and product claims dating from the 1980s.
Buffett told shareholders in a February 2007 letter that despite uncertainty over the timing and size of potential claims, "Ajit and I think the odds are in our favor."
Asbestos exposure has long been a problem for insurers. While many companies by the mid-1970s had stopped using asbestos for fireproofing and insulation, litigation persists because after-effects can take decades to surface.
In its annual report, CNA said it 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."
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.
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