Investors around the world keep a close eye on the goings-on of Warren Buffett and the multi-billionaire's company Berkshire Hathaway Inc (NYSE:BRK.A)(NYSE:BRK.B). However, a deal between the investing great and home-grown insurance share Insurance Australia Group Ltd (ASX: IAG) has been under Aussies' noses for years.
The market has been reminded about a whole of account quota share (WAQS) agreement between S&P/ASX 200 Index (ASX: XJO) insurer IAG and Berkshire Hathaway subsidiary National Indemnity Company (NICO) today with news of its renewal. Though, other key deals between the pair have been scrapped.
The IAG share price is up 0.84% on the back of the announcement, trading at $4.80.
Let's take a closer look at what agreements the pair have and haven't renewed.
IAG share price lifts on news of Buffett agreement
The IAG share price has climbed on Thursday after the company announced it renewed one of its previous agreements with Buffett's Berkshire Hathaway.
The renewed WAQS agreement represents 20% of IAG's WAQS program. It came into effect on 1 January 2023 and applies until 31 December 2029.
Quota share deals see an insurer – in this case IAG – offering a reinsurer – such as NICO – a portion of insurance premiums in exchange for paying out the same portion of claims – in this case, 20%.
IAG has now renewed 30% of the 32.5% WAQS with various reinsurers. Negotiations on the remaining portion are expected to be completed in the coming months.
Meanwhile, a strategic relationship agreement and equity ownership subscription agreement previously made with Berkshire Hathaway won't continue.
IAG formed a strategic relationship with Buffett's company in 2015. The billionaire said at the time:
I am 84 years old and this is my first investment in an Australian company. I've been very derelict, but it has been worth waiting for.
Back then, Berkshire Hathaway forked out $500 million for a 3.7% stake in IAG, paying $5.57 per share.
It also agreed its stake in the ASX 200 insurer would remain between 3.7% and 14.9%. Meaning the billionaire might now be free to sell his holding in the company.
IAG chief financial officer Michelle McPherson commented in today's release, saying:
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.
