NEW YORK (TheStreet) -- Warren Buffett's Berkshire Hathaway (BRK.A) has bought a 3.7% stake in Insurance Australia Group for $388 million. IAG announced the partnership, under which Berkshire will reap 20% of the insurer's gross written premiums, and pay out 20% of its insurance claims for 10 years. It says the deal enables both companies to draw on each other's strengths to better meet customers' needs.
Berkshire entered its first commercial transaction with IAG about 15 years ago, according to Buffett, who explained why he predicts the newly established partnership will continue for years to come. "IAG is a terrifically strong company with great strengths in many areas," he said. "Berkshire's got some strengths and we believe by bringing these two companies closer together as partners, that each company will benefit in various financial ways. Even though this contract runs for 10 years, I expect for decades and decades and decades to come that both companies will benefit in many ways that perhaps we can't even visualize right now."
IAG Managing Director and CEO Mike Wilkins said in a statement, "Our relationship with Berkshire Hathaway will provide IAG with significant capital flexibility while enhancing our ability to deliver improved consistency of earnings. It also further enhances IAG's personal and SME insurance proposition and, importantly, it provides a springboard for future business innovation and development for both companies. 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 specialty insurance expertise."
Buffett, 84, said the partnership-and-investment deal was the first of its kind for him in an Australian company.