What: Last week news emerged that the Warren Buffett controlled insurance company Berkshire Hathaway Specialty Insurance (BHSI) had hung out its shingle on an office in Sydney.
So what: Its great news for consumers that there is a new, deep pocketed competitor in the domestic market which by and large is dominated by a few names including the listed players QBE Insurance Group Ltd (ASX: QBE), Insurance Australia Group Ltd (ASX: IAG) and Suncorp Group Ltd (ASX: SUN).
Initially BHSI will provide property, casualty, financial lines and marine cargo insurance however there would be every expectation that this product set will expand over time.
It's poignant to note that Berkshire isn't just expanding into Australia but also New Zealand, Hong Kong and Singapore and its doing it organically rather than through a dangerous growth by acquisition model which practically brought QBE to its knees under former management.
Now what: The Australian insurance sector is already a super-competitive marketplace so in reality one more competitor – particularly Berkshire which is more likely to act in a rational pricing manner – may not have a dramatic effect on the overall profit margin within the Australian insurance market. However it will almost certainly have an effect on the market share of the respective incumbents.
What next: With the exception of QBE which is in the midst of a turnaround that has helped lift the share price nearly 14% in the past year, IAG and Suncorp have both underperformed the 5% return of the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). From an earnings point of view the entry of BHSI is a negative for the whole sector, which in turn certainly won't help with any share price recoveries.
