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Buffett’s busy year Down Under

An enlightening article by insurance industry publication Insider Quarterly (IQ) has shed some light on one of Warren Buffett’s closest associates, Ajit Jain. Jain heads up Berkshire Hathaway Reinsurance, a significant and very profitable division of the wider Berkshire Hathaway (NYSE: BRK-A, BRK-B) empire, and he is often touted as a potential heir to Buffett given his phenomenal skills at dealing with complex insurance transactions.

The article in IQ begins with the observation that there appears to have been a “change of direction” in the policies written by Jain recently and then proceeds to alert readers to a number of transactions done in Australia recently.

So what have these recent moves been that led author Adam McNestrie to suggest Jain is focusing on the Asia Pacific region and prepared to write what is considered more ‘vanilla’ and less profitable business than his usual headline grabbing deals?

First, in January 2012, Jain “played big on Australasian cat and international retro” insurance by taking a large share of Insurance Australia Group’s (ASX: IAG) property catastrophe treaty, which was suffering from significant losses. This was considered a more “classic” Jain manoeuvre given IAG’s sharp losses.

Jain’s forays Down Under didn’t stop there though. In 2013, Jain worked with Suncorp (ASX: SUN) and “ramped its line on the main programme up to around $800 million, hoovered up the entire New Zealand buy-down protection and wrote a $300 million-premium quota share of Suncorp’s Queensland homeowners’ book. It is believed all of this was written for a three-year period.”

The Suncorp business was then followed by a deal with QBE Insurance (ASX: QBE) to take a 15% line across a major number of QBE’s lines, “including the company’s $1.3 billion global cat treaty and its global aggregate cover.”

All up, IQ estimates Berkshire Hathaway may have written between $1.5 billion and $2 billion in insurance within the Asia Pacific region over the past two years.

Foolish takeaway

McNestrie concludes that Berkshire Hathaway has become so large that it will not only have to start doing more business away from its traditional markets of the USA and Europe but that it will also have to accept less profitable business lines as well.

Just as size is a problem for Warren Buffett – one of the world’s greatest investors – size at the other end of the scale can be a huge opportunity for individual investors. Individual investors have opportunities to be more nimble and access opportunities that are simply too small for the big players to be involved in.

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Motley Fool contributor Tim McArthur owns shares in QBE Insurance.

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