NEW YORK (Bloomberg) ? Warren Buffett?s Berkshire Hathaway Inc. agreed to assume as much as $7 billion of risks held by former investors in Lloyd?s of London, taking on potential asbestos claims that once threatened the London insurance market?s existence.

The deal centres on Equitas Inc., which was established by Lloyd?s to protect it from certain policies sold before 1993. Buffett?s US insurance and investment firm gets as much as $749 million and the $8.7 billion Equitas has already set aside for claims, the companies said last week. In exchange, Equitas will be covered for as much as $7 billion in claims that may surface later.

The agreement may end more than a decade of concern that Equitas, representing about 34,000 private investors with personal liability as former ?names? at Lloyd?s, would be unable to pay potential claims. From 1988 to 1992, insurers in the Lloyd?s market lost ?8 billion on a series of asbestos, natural disasters and pollution claims.

?The problems of the 1990s continued to cast a shadow over Lloyd?s,? said Michael Deeny, chairman of the Association of Lloyd?s Members, which represents names. ?That shadow has now been removed.?

Fitch Ratings said it may raise the financial strength rating on Lloyds from A and Standard & Poor?s changed its outlook on the rating to positive from stable as a result of the deal. Lloyd?s will contribute about ?90 million ($169.5 million) to limit asbestos liabilities for former private investors.

Before 1996, ?Lloyd?s was facing huge losses that threatened its very existence,? Equitas chairman Hugh Stevenson said in a conference call with journalists. The objective of Equitas was to achieve ?finality of liabilities? for investors who underwrote those claims. ?It looks like we have done just that,? he said.

Reinsurers such as Berkshire?s National Indemnity Co. make bets on their ultimate payouts just like insurers do.

The deal may be especially lucrative to Omaha, Nebraska-based Berkshire because it won?t inherit the limitations Equitas had on investing the reserves, said Chris Waterman, an analyst with Fitch Ratings in London who follows Lloyd?s.

The claims will likely take years to resolve and pay.

?Equitas is under tight restrictions on investing those assets, where Berkshire can be more aggressive,? Waterman said. The Equitas reserves are largely invested in bonds and other conservative assets, he said. In the first phase of the agreement, Equitas will have as much as $5.7 billion of reinsurance coverage from National Indemnity in exchange for most of Equitas? assets and ?72 million ($135.6 million) from Lloyd?s, the companies said. An English unit of Berkshire will assume Equitas employees and operations.

In a second phase, Equitas will seek court approval to transfer the liabilities from the names to Equitas or National Indemnity, which will provide as much as $1.3 billion of additional reinsurance. Equitas will pay National Indemnity as much as ?40 million ($75.4 million) more and Lloyd?s will contribute another ?18 million ($33.9 million).

Lloyd?s former names may receive a small payout when the first part of the deal is done, possibly as soon as March 2007. They may get another payment when the second phase is completed by the end of 2009.

?The names have said to me, ?You know, I just want to be able to sleep at night?.? said Scott Moser, chief executive officer of Equitas. ?Well, we just bought them the world?s best mattress.?

Equitas has paid more than $17 billion in asbestos claims to companies including General Motors Corp., Halliburton Co., and Honeywell International Inc. With ?decades? of problems yet to resolve, Berkshire?s ?Gibraltar-like? strength eliminates any remaining worries, Buffett said in a statement last week.

?Even if it all blows up tomorrow, $5.7 billion is less than the pre-tax income for Berkshire Hathaway the first six months of the year,? said Don Thorpe, a Fitch analyst in Chicago who follows Berkshire. ?There aren?t that many companies that could have done this transaction.?

Buffett, Berkshire?s 76-year-old chairman and chief executive officer, has made other bets on asbestos, a material used in insulation and construction through the 1970s that is linked to respiratory illness and cancer.

This year Berkshire boosted its stake in wallboard manufacturer USG Corp., which emerged from bankruptcy in 2001 after being sued over asbestos. The company owned 19 percent of USG as of October 6, regulatory filings show. Shares of Berkshire, which gets about half the company?s profit from insurance, fell $80 to $99,900 in New York Stock Exchange composite trading on Friday. Buffett built the firm from a failing textile manufacturer to a $154 billion holding company by acquiring assets in dozens of industries.