12th January 2023 – Author: Matt Sheehan
Australian insurer IAG has announced the renewal of its largest Whole of Account Quota Share (WAQS) agreement, with National Indemnity Company (NICO), a subsidiary of Berkshire Hathaway, but there have also been key changes to the terms of the relationship between the companies.
For instance, Warren Buffett’s company will be free to sell down a $465 million stake in IAG, and to offer reinsurance to competitors in the Australian industry due to the non-renewal of an exclusivity agreement, the Australian Financial Review reports.
These changes come amid speculation that the relationship between Berkshire and IAG has become strained, with the former possibly irked that its investment in IAG is now worth less than the original price it paid.
Berkshire initially purchased a $500 million stake in IAG at $5.57 per share, and later bought in further at a price of $5.05 per share, but are now only trading at $4.80 at the time of writing.
Nevertheless, both parties agreed terms to renew their reinsurance arrangement, with the treaty representing 20% of AIG’s total 32.5% WAQS program, and running through until 2029.
IAG has now renewed 30% of the 32.5% WAQS, with Munich Re, Swiss Re, and Berkshire Hathaway, all effective from 1 January 2023, with negotiations on the remaining 2.5% expected to be completed in the coming months.
“Berkshire Hathaway is a key partner of IAG and we are pleased to extend our strong relationship through to the end of the decade,” said IAG Chief Financial Officer Michelle McPherson. “The Berkshire Hathaway agreement delivers IAG a materially consistent financial outcome to the original agreement and supports our 15% to 17% medium-term reported margin target.”
McPherson added: “The terms of the renewed agreement with Berkshire Hathaway’s NICO reflect the maturing of our partnership, and the removal of supporting Subscription and Strategic Relationship Agreements provides consistency with our other quota share partner arrangements.”
IAG has provided a detailed break-down of its catastrophe reinsurance renewal for 2023, which saw it maintain a flat gross protection cover at up to $10 billion, same as in 2022, with a first event retention that was increased to reflect “inflation and the global reinsurance market impacts”.
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