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.
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.
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.
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