Updated from 3:12 p.m. EDT
Once again, the billionaire investor Warren Buffett sees an opportunity where others see a red flag.
Buffett's investment company,
, is making a foray into
Lloyd's of London
, the struggling British insurance market, with its acquisition of an underwriting business.
Buffet's group said Wednesday that it would buy the
Marlborough Underwriting Agency
, which insures ships and protects companies from an array of risks. The price of the acquisition was undisclosed.
The deal expands Berkshire Hathaway's already large insurance business, which includes
, the auto insurer, and
, a leading reinsurance company.
While Buffett is reaching into the market, which has suffered in recent years from losses linked to asbestos-related claims,
, the giant British insurer that owns the underwriting agency, said it is heading out.
CGNU, like other companies in the Lloyd's market, has struggled lately to cope with losses caused in part by a large number of disasters, both natural and man-made. For CGNU, the deal with Buffett, regarded as one of the savviest investors ever, represents an exit strategy.
The sale "will improve the quality of the group's future earnings by removing the uncertainties relating to London market risks and any further exposure to this business," CGNU said in a statement explaining the deal.
The roughly 300-year-old
Lloyd's of London
, which insures everything from movie stars' legs to airplanes, is expected to post losses of more than $4.5 billion for 1998, 1999 and 2000, with most of its insurance syndicates recording deficits, according to ratings agency
Buffett has taken advantage of CGNU's recent decisions to sell some of its weaker parts. In late September, he said he would partially finance
White Mountains Insurance Group's
bid to buy CGNU's U.S. property an casualty operations. Buffett said he would invest $300 million as part of the transaction.
Insurance companies experienced particularly heavy claims burdens recently, amid a spate of storms, earthquakes, tornados and hurricanes. But these rising claims have failed to bring an increase in insurance premium rates for the companies.
Last year, according to a Moody's report, could have been "the bottom of the current downcycle" for the London insurance market.
CGNU, which is based in London, said it would incur a $651 million charge to buy reinsurance from Buffett's Omaha-based Berkshire Hathaway to cover Marlborough claims that surpass current reserves.
Buffett's investors showed little reaction to the deal. Shares of Berkshire Hathaway, the nation's most expensive stock, finished up $700, or, 1%, $64,400.
Berkshire Hathaway's stock dropped sharply last year, as Buffet, a self-proclaimed "lifelong technophobe," shunned popular technology stocks.
But Buffet has earned a reputation of a Wall Street sage for ignoring the whims of average investors and seeing the profit potential in a number of once-unpopular companies, including
in the late 1980s.