Berkshire Hathaway to Boost Insurance Business in Australia - Analyst Blog

Sources have reported that Berkshire Hathaway Inc. BRK.B is gearing up to expand its insurance business in Australia, with a 3.7% stake buyout in Insurance Australia Group Ltd. Berkshire Hathaway will pay $388 million to Insurance Australia for 20% of the latter’s insurance premium payments and will be in charge of making 20% of claims on polices being covered for over 10 years.

The latest move signals Berkshire Hathaway’s intention to expand its commercial insurance operations in Australia. However, business expansion in the region is not new for the company. Berkshire Hathaway Specialty Insurance which was formed in 2013 has also commenced operations last year in Australia.

The company is quietly expanding its insurance operations with the aim of capitalizing on a fast-growing Australian market – still underserved by the existing insurers. Though insurance majors such as Prudential Financial Inc. PRU and MetLife Inc. METhave been operating in the region, changing demographics present enough scope for new entrants.

Warren Buffett, the CEO and chairman of Berkshire Hathaway plans to invest the capital received from the deal in buying stakes in other Australian businesses such as banks. Buffett – the main hand behind all the investments at the company – used surplus funds or moat generated by the insurance units to make numerous acquisitions for over 50 years.

Courtesy of the huge capital release by its insurance units, the company is now a conglomerate of over 90 subsidiaries selling ice-cream to insurance. Investible surplus money, called float, was about $83.5 billion as of Mar 31, 2015.

Though the company runs heterogeneous businesses, the front runner remains insurance which generates maximum return on equity. Therefore, the company remains committed to develop this business. Moreover, Berkshire Hathaway is strengthening other insurance units since Buffett is foreseeing heightened competition that could hurt its reinsurance business over the next decade.

UK household insurance risks 2016 underwriting loss -data

LONDON (Reuters) - British household insurance could next year see its first underwriting loss since 2007, as benign weather conditions have kept prices low in a competitive market, consultants Deloitte said on Thursday.

Aviva, RSA and Direct Line are among firms offering household insurance, along with international ones operating in Britain such as AXA and Allianz.

Good weather reduces demand for household insurance, pushing down prices, while price comparison websites enable consumers to shop around for the best deal, said James Rakow, an insurance partner at Deloitte.

"The market seems to need a reminder of the size of catastrophic losses to maintain premium levels," Rakow said.

Net combined ratios for the sector - a measure of profitability in which a result above 100 percent indicates a loss - will improve in 2015 to 90.3 percent from 92 percent in 2014, but worsen to 98.3 percent in 2016, Deloitte said.

"With ratios so close to 100 percent in 2016, the risk of the home insurance industry reporting an underwriting loss ... is at its highest for the last decade."

Gross written premiums will fall by around 5 percent this year to 6.3 billion pounds, and by a further 3 percent in 2016, to 6.1 billion pounds, Deloitte said.

Deloitte analysed data from 30 insurers operating in Britain.

(Reporting by Carolyn Cohn, editing by David Evans)