(Bloomberg) – Berkshire Hathaway Inc., the investment company run by Warren Buffett, will pay A$500 million ($388 million) for a stake in Insurance Australia Group Ltd. and gain exposure to a fifth of its insurance accounts.
The deal will give the company 20 percent of IAG’s insurance premium payments and make it liable to pay 20 percent of claims over an initial 10-year period, IAG said in a regulatory statement Tuesday. The U.S. group will get a 3.7 percent stake via a placement of new shares, the insurer said.
IAG shares jumped as much as much as 5.9 percent in Sydney, the most in more than three years.
IAG will use the deal to reduce its exposure to payouts from natural disasters, such as the November 2014 Brisbane hailstorm that caused about A$1.35 billion in industry-wide losses. IAG is one of the world’s largest purchasers of catastrophe reinsurance, and has had a reinsurance agreement with Berkshire Hathaway since 2000.
“Our strategic partnership with IAG will help fast-track our entry into this region,” Buffett said in the statement. “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.”
Omaha-based Berkshire Hathaway owns insurer Geico and reinsurer Gen Re and made about 29 percent of its pretax income last year from insurance, according to data compiled by Bloomberg.
Shares in IAG rose 4.5 percent to A$5.82 at 10:10 a.m. in Sydney, headed for their biggest gain in nearly two years. and comparing to the A$5.57 price of Berkshire Hathaway’s placement shares.
The share purchase will be the U.S. company’s largest deal by announced value in the Asia-Pacific region, according to data compiled by Bloomberg. It’s also the company’s biggest purchase in the insurance industry since the 2010 takeover of Wesco Financial Corp., separate data show.
