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fareastwarriors

By fareastwarriors
in Berkshire Hathaway

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Krapdivad
Krapdivad

There was a pre-Berkshire meeting by Yahoo Finance today with Laurence Cunningham, Robert Hagstrom, Carol Loomis, and Tom Gayner.    Took a few notes if anyone was interested:   La

fareastwarriors
fareastwarriors

$tsm 👀     

nwoodman
nwoodman

Fascinating purchase by Berkshire.  A couple of thoughts.  1. Is this a cheap way to ride the Apple juggernaut?  2. Is this more Munger than Buffett?  Charlie being interviewed tomorrow on CNBC - coin

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dcollon Enthusiast

dcollon

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"While some Buffett  wannabees on Forbes’s list operate like Berkshire, using insurance float to fund investment in disparate business lines and publicly-traded securities, others are more specialized than the ‘Oracle of Omaha’ and focused on niche markets where they have a narrow expertise. A handful of Wall Streeters who once might have been deemed ‘corporate raiders’ or buyout kingpins, meanwhile, are beginning to display their Buffett stripes."

 

http://www.forbes.com/sites/antoinegara/2015/05/15/10-wannabe-berkshire-hathaways-warren-buffett/

 

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gfp Grand Master

gfp

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General Berkshire news - Suncorp wasn't too thrilled that BHSI entered Australia as a competitor and pulled back from their relationship with Ajit, now Berkshire is doing this deal with IAG -

 

*edit: bloomberg article adds Buffett comments, including an uncharacteristic description of what he will invest the float in?

http://www.bloomberg.com/news/articles/2015-06-15/buffett-s-berkshire-hathaway-pays-a-500-million-for-stake-in-iag

 

another article quoting Buffett on the deal:

http://www.smh.com.au/it-pro/warren-buffett-to-spend-2bn-a-year-on-aussie-equities-20150616-ghpayi

 

From Insurance Insider yesterday:

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IAG agrees A$2.3bn Berkshire quota share

 

IAG has entered into a long-term partnership with Berkshire Hathaway underpinned by a 10-year 20 percent quota share arrangement across the Australasian insurer's consolidated insurance business.

 

Based on IAG's full-year 2015 gross written premium (GWP) growth expectations, Berkshire Hathaway will receive an estimated A$2.3bn ($1.8bn) of the company's consolidated GWP.

 

The whole account quota share is intended to reduce IAG's earnings volatility and capital requirements, the carrier said, and is effective from 1 July.

 

The deal also sees Berkshire Hathaway take a 3.7 percent stake in IAG via an A$500mn ($387mn) placement, acquiring 89.8 million new fully paid IAG ordinary shares at $5.57 each.

 

The Australian insurer has an option to place an additional 5 percent stake with Berkshire Hathaway within 24 months, with the conglomerate agreeing not to increase its stake beyond 14.9 percent over the next decade.

 

IAG will also acquire Berkshire Hathaway's local personal and SME business lines, while Berkshire will acquire the renewal rights to IAG's large corporate property and liability insurance business in Australia.

 

The rights to be transferred by IAG represent less than 1 percent of its annual GWP.

 

IAG said that the two companies would have an "exclusive relationship in Australia and New Zealand".

 

Berkshire Hathaway and IAG concluded a number of multi-year cat deals in the wake of the 2010/11 New Zealand earthquakes, helping to make New Zealand the conglomerate's largest probable maximum loss.

 

Chairman and CEO of Berkshire Hathaway Warren Buffett commented: "Our strategic partnership with IAG will help fast-track our entry into this region, and provides us with opportunities to leverage IAG's extensive capabilities while also making our expertise available to IAG."

 

The quota share arrangement will reduce IAG's exposure to catastrophe risks in Australia and New Zealand, but IAG said its strategic priorities in those regions remain unchanged.

 

IAG said it expected the quota share arrangement would result in a reduced capital requirement of approximately A$700mn over the next five years, with around A$400mn of that benefit expected to be realised in 2016.

 

The company said that the partnership would give it greater strategic and financial flexibility to pursue growth opportunities, particularly in Asia in its target markets of India, Thailand, Malaysia, China, Vietnam and Indonesia.

 

In India, IAG is looking to increase its stake in SBI General, the general insurance joint venture with State Bank of India, from 24 percent to 49 percent.

 

It also recently acquired an insurance licence in Indonesia via the purchase of general insurer PT Asuransi Parolamas.

 

The company said it would consider participating in any potential industry consolidation in Thailand, and further opportunities to expand its presence in Malaysia via the joint venture AmGeneral Holdings.

 

IAG managing director and CEO Mike Wilkins commented: "China is a source of enormous potential growth for IAG and we are actively working on opportunities to increase our presence in that market."

 

IAG chairman Brian Schwartz added: "We believe the partnership is an endorsement of our strategy, the strong franchises we have created in the Asia Pacific region and an acknowledgement of the complementary capabilities we can bring for our customers."

 

In addition to providing IAG with the capital for an Asian growth strategy, the quota share's structure should improve the firm's insurance margin by around 200 basis points - implying a significant amount of override.

 

It is also Berkshire Hathaway's most significant such deal since it agreed to provide Swiss Re with a 20 percent quota share of its P&C book in the throes of the financial crisis in 2008. In the final year of the deal Berkshire assumed $2.6bn of premiums.

 

That agreement, which also saw the carrier take a 3 percent stake in the Swiss giant, ran for five years and expired at the end of 2012.

 

More recently, Berkshire Hathaway concluded a quota share for 30 percent of Suncorp's Queensland homeowners' portfolio, but this was only worth annual premium of around A$300mn.

 

The agreement incepted in 2012 but was coming to an end at the mid-year renewals this year.

 

It is understood Berkshire Hathaway's entry into the primary market in Australia has caused friction with Suncorp, as The Insurance Insider has previously reported.

gfp Grand Master

gfp

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A bit more on the deal and the Q&A with analysts:

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IAG to slash its open market reinsurance spend

Adam McNestrie

 

IAG expects to reduce its open market reinsurance spend by 20 percent to accommodate its new strategic partnership with Berkshire Hathaway, according to CFO Nick Hawkins.

 

Speaking to analysts earlier today (16 June), Hawkins said: "We will be shrinking our reinsurance buying by 20 percent on everything.

 

"As an example, when we go to market - assuming the same programme we currently have on the main cat tower - where at the moment we buy just over A$7bn ($5.4bn), that number will shrink by 20 percent."

 

IAG said that it would not be looking to restructure its current cat cover, which runs until 31 December, and that any changes would come for the 2016 placement.

 

This morning, IAG and Berkshire Hathaway announced a 10-year, 20 percent quota share across the Australian carrier's insurance businesses that will see A$2.3bn of premiums ceded annually.

 

The broad-ranging deal also included an A$500mn equity placement with Berkshire Hathaway that gives Berkshire a 3.7 percent stake in IAG, and a business swap where IAG will exit large commercial business and Berkshire discontinue writing personal lines and SME business.

 

IAG tried to maintain that the long-term agreement - which it expected to last beyond the initial 10-year term - would not impact its relationships with its other reinsurers.

 

"Our expectation is that it won't affect them at all," Hawkins argued, saying that he expected such relationships with other major reinsurers to "continue on as they are".

 

However, many of IAG's reinsurers were already understood to be disgruntled.

 

As previously reported, IAG headed into its 1 January renewal pursuing a major rate decrease on its huge cat programme, despite warning reinsurers to expect a major and unspecified loss deterioration from the New Zealand earthquakes in 2010 and 2011.

 

Following articles from this publication, IAG informed reinsurers just ahead of the renewal that its fully reinsured losses would rise by NZ$750mn-NZ$1bn, ($523mn-$697mn), but still pushed ahead with rate reductions of 10-20 percent.

 

IAG's shares responded positively to the announcement of the deal, surging by 4.3 percent to close at A$5.81.

 

However, analysts gave CEO Mike Wilkins and CFO Hawkins a hard ride during the Q&A session, as they repeatedly questioned the dilution to earnings that the deal looks set to produce.

 

Ross Curran of CBA asked if IAG had agreed to give away 20 percent of the company for a 3.7 percent equity investment.

 

A JP Morgan analyst said that it appeared the agreement would produce a 3 percent dilution in 2016 earnings, as well as increasing the group's share count by 3.8 percent.

 

"It seems like quite a dilutive deal. So to do this just for a strategic relationship seems like quite an expensive deal."

 

An analyst also questioned the value of a put option for a further 5 percent of the shares in issuance, given that IAG is now comfortably above its targeted capital range.

 

IAG's primary motivation for the agreement was the override that it will receive on the quota share and the move towards a more fee-heavy earnings stream which that would bring.

 

Hawkins said: "The key to the transaction is what the additional fee income, or commission income, or exchange commission we're receiving over and above the proportional share of claims and expenses to compensate IAG and IAG shareholders for the access to that profit stream."

 

Later, he expanded on this point: "We're trading volatility for more certainty; and you're trading insurance risk for fee-based income, and as part of that there's this opportunity to release capital off the books to the tune of A$700mn."

 

The JP Morgan analyst also seemed to find IAG's stated rationale for the deal hard to follow, particularly in terms of the capital changes.

 

"A question I have is around the need for the capital raise you're doing," he said, citing the A$700mn capital release and the A$500mn equity placement. "I'm just wondering what actually is triggering this. Because you're flagging opportunities in Asia, but nothing has really changed from what you said in the past."

 

He continued: "You said India, Indonesia - but they're all quite small in the scheme of things."

 

With so much capital freed up, Wilkins felt the need to address the possibility that IAG was gearing up for a major deal.

 

"The capital that we've got is not burning a hole in our pocket," he said, emphasising that there was no pressure to pursue a major transaction in Asia.

 

IAG said that following the equity raise and factoring in the impact of the quota share, its pro forma Prescribed Capital Amount ratio would be 2.14x - compared to a target range of 1.4x-1.6x.

 

Adam McNestrie can be found tweeting at @adammcnestrie

  • 2 weeks later...
Charlie Enthusiast

Charlie

Posted
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"Me too.

 

Wondering what Omaha is up to, during these days of euphoria? Kids out at the candy store, ha."

 

Tsipras and Varoufakis will make us a lot of money.  ;D

 

They are crazier than I could imagine.

 

As Benjamin Franklin said: "It is hard for an empty bag to stand upright."

 

 

Cheers!

Guest longinvestor

Guest longinvestor

Posted
Posted

 

more solar news involving BHE

 

http://berkshirehathawayenergyco.com/news/new-subscriber-solar-program-will-offer-affordable-convenient-way-to-use-renewable-energy

Rocky mountain power launches the subscriber solar program as an alternative to rooftop. For those unwilling/unable to do rooftop, for renters etc.

 

http://www.bloomberg.com/news/articles/2015-07-08/berkshire-s-abel-says-musk-s-battery-needs-cost-breakthrough

"Cost of batteries need to come down to make it viable for utilities"

 

At the annual meeting in Omaha, there were a number of questions about rooftops versus utility scale solar. Abel's answer was that the focus was on making their utility the lowest cost source. The subscriber solar program is interesting!

 

 

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Charlie Enthusiast

Charlie

Posted
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"Buffett’s Celebration Tempered by 50th Anniversary Stock Slump

 

http://www.bloomberg.com/news/articles/2015-08-05/buffett-s-celebration-tempered-by-50th-anniversary-stock-slump"

 

Reinsurance prices don´t look too bad:

 

UPDATE 1-Hannover Re raises 2015 profit target after Q2 net gain

 

http://www.reuters.com/article/2015/08/05/hannover-rueck-results-idUSL5N10G0K620150805

 

We could get a small Lollapalooza in Berkshire´s share price.  ;)

undervalued Newbie

undervalued

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Looks like BRK is building some equity stakes somewhere. Maybe that's why they financed part of PCP with debt?

 

http://www.bloomberg.com/news/articles/2015-08-14/berkshire-increases-stake-in-charter-keeps-some-trades-secret

 

In the article it says:

 

“They’ve got to put money to work,” Jeff Matthews, a Berkshire investor and the author of books about the company, said before the filing was released. “They can’t tell Warren, ‘I hate this market, I’m going to wait for a crisis.’”

 

Really? That's weird. I guess they operate like a mutual fund?

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