Warren Buffet’s Berkshire Hathaway has bought into the Australia’s IAG insurance group, strengthening a long term relationship and creating a strategic partnership.
Buffet, said to be the most successful investor of the 20th century, is taking a 3.7% stake for $500 million.
He says the quality and strength of the IAG business were pivotal to his company’s decision to enter the relationship.
“We have worked with IAG for more than 15 years and over that time we’ve developed a good understanding and respect for their people, what they offer and the way they do business,” Buffet said in a statement.
“Our strategic partnership with IAG will help fast-track our entry into this region, and provides us with opportunities to.”
IAG CEO Mike Wilkins says the partnership is expected to deliver significant benefits.
“Our relationship with Berkshire Hathaway will provide IAG with significant capital flexibility while enhancing our ability to deliver improved consistency of earnings,” 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 and Berkshire Hathaway have had a reinsurance relationship since 2000. Under the expanded relationship, the two companies will work together exclusively to enhance customer offerings.
Berkshire Hathaway will acquire 89,766,607 new IAG ordinary shares at $5.57 per share. The price was set at the IAG closing share price on Monday.
IAG and Berkshire Hathaway have also entered into a 10-year whole of account share arrangement. Berkshire Hathaway will receive 20% of IAG’s gross written premiums and pay 20% of claims.
Berkshire Hathaway will also reimburse IAG for its share of operating costs and pay a percentage-based fee which recognises the value of accessing IAG’s strong core franchise.
IAG, one of the world’s largest purchasers of catastrophe reinsurance cover, is pursuing Asian growth opportunities in India, Thailand, Malaysia, China, Vietnam and Indonesia.
IAG shares jumped more than 5.7% to $5.89 in early trade.