Recently, Berkshire Hathaway Inc. proposed a multibillion dollar transaction to reinsure and conduct the runoff of the liabilities of Equitas Ltd., the reinsurance vehicle for all liabilities arising from policies underwritten by Lloyd’s prior to 1993. Under the arrangement, the liabilities of Equitas will be reinsured by Berkshire’s National Indemnity Co. unit. If the transaction receives U.K. regulatory approval, National Indemnity will provide up to $7 billion of reinsurance coverage to Equitas and assume its current staff and operations to conduct the runoff of the liabilities.

In the first phase of the two-phase transaction, National Indemnity will provide reinsurance cover of $5.7 billion to Equitas above its reserves of $8.7 billion as of March 31, 2006, with an adjustment for payment and recoveries since that date. In turn, Equitas will transfer its assets to National Indemnity, less £172 million for miscellaneous expenses, and Lloyd's will pay £72 million.

On completion of phase one, a small return premium will be paid to the individual reinsured Lloyd’s investors (known as "names"). The transaction does not require approval from names, but it does need approval from the trustees of Equitas. To that end, a series of meetings will be held between now and March 2007. The Financial Services Authority, which regulates insurance in the United Kingdom, must also approve the transaction before March if it is to proceed.

In the second phase, Equitas will seek approval of the U.K. High Court to transfer all liabilities of names into Equitas or a subsidiary of Berkshire. Currently, names are reinsured by Equitas, but they retain liability — at least in theory. As a practical matter, it is unlikely that chasing down individual names for their fractional shares would ever be a feasible option for policyholders. If this phase two transfer occurs before the end of 2009, National Indemnity will provide up to $1.3 billion of additional reinsurance cover for a further premium of up to £40 million. At the time of any such transfer, or if a transfer has not occurred by the end of 2009, Lloyd’s will pay a further £18 million.