Berkshire Hathaway has bought a 3.7% stake in Insurance Group Australia (IAG) for A$500 million.
In other words,
Berkshire Hathaway has investments across a range of industries including general insurance and reinsurance. It is one of the top 10 publicly-listed companies globally, with a market capitalisation of around US$350 billion. It launched its specialty insurance business in
Speaking in a recorded video played during a teleconference today, Berkshire chairman and chief executive Warren Buffett said, "I'm 84-years-old and this is my first investment in an Australian company. I've been very derelict, but it’s been worth waiting for.
“We've entered into an area of the world where we've done some business before, but now we're coming in with an ownership position."
IAG group managing director and chief executive, Mike Wilkins, says the deal will reduce IAG's capital requirements by about A$700 million by 2020; with A$400 million of this captured in 2016.
“It also further enhances IAG’s personal and SME insurance proposition and, importantly, it provides a springboard for future business innovation and development for both companies”, he says.
“We look forward to the benefits that will flow from the combination of IAG’s underwriting skills, supply chain management expertise and deep customer knowledge, coupled with Berkshire Hathaway’s specialty insurance expertise.”
IAG reports it will “acquire Berkshire Hathaway’s local personal and SME business lines. In return, Berkshire Hathaway will acquire the renewal rights to IAG’s large-corporate property and liability insurance business in
The rights to be transferred by IAG represent less than 1% of its annual Gross Written Premiums.
Reduced need for reinsurance
IAG says the deal will also reduce its need for more reinsurance – it’s currently one of the world’s largest purchasers of catastrophe reinsurance cover.
It says, “The quota share arrangement will reduce IAG’s exposure to the geographic concentration of insurance risk in
Buffett, says, “We have worked with IAG for more than 15 years... they are a natural partner with a strong management team and brand presence.
He hopes the partnership will help fast-track
IAG says it’s looking to deepen its reach into
Buffett and Wilkins expect their relationship to continue well beyond the 10-year deal in place.
IAG can place up to a further 5% of IAG’s expanded issued capital to
IAG's chief financial officer Nick Hawkins says the partnership won’t affect the company’s dividend policy.
IAG’s share price rose 5% today to A$5.85.