Berkshire Hathaway has purchased a 3.7 percent stake in the Insurance Australia Group (IAG), taking a 20 percent quota from the company's insurance business.
Warren Buffet's multinational conglomerate holding company is set to purchase 89.77 million shares of IAG stock at $5.57 each.
"The transaction gives Buffett a significant long-term exposure to the Australian market at a reasonable risk," Bell Potter Securities Ltd. analyst T.S. Lim told Insurance Journal.
"For InsuranceAustralia, it is about a long-term play. That is, having the resources and scale to frustrate the smaller players in the retail market."
Following news of Berkshire Hathaway's acquisition, IAG shares rose 4.3 percent. The Australia-based company is said to use the funds to reduce exposure to natural disasters.
The agreement will form a 10-year, 20 percent quota arrangement.
"We view this as a step change in our relationship with Berkshire Hathaway," IAG chief executive Mike Wilkins told Financial Review.
"We look forward to the benefits that will flow from the combination of IAG's underwriting skills, supply chain management expertise and deep customer knowledge, coupled with Berkshire Hathaway's speciality insurance expertise."
The company was founded in 1955.
