Bloomberg News

Berkshire to Pay CaixaBank $780 Million in Reinsurer Bet

November 30, 2012

Warren Buffett’s Berkshire Hathaway Inc. agreed to pay 600 million euros ($780 million) to reinsure a book of individual life policies at CaixaBank SA (CABK), Spain’s third-biggest lender.

CaixaBank will book a one-time 524 million-euro pretax gain from the deal with Berkshire, the Barcelona-based lender said in a filing to regulators in Madrid today. Omaha, Nebraska-based Berkshire will get future profits from the portfolio, which generated premium revenue of 231 million euros last year, according to a spokesman for the bank who asked not to be identified in line with company policy.

Berkshire has profited as a source of liquidity during times of crisis, including deals in 2008 to inject $5 billion into Goldman Sachs Group Inc. and assume liability for a portion of coverage written by Swiss Re Ltd. New European regulations and the region’s debt crisis may push some companies to cede risk or raise capital, Greenlight Capital Re Ltd., the reinsurer that counts David Einhorn as its chairman, has said.

“The current problems being caused by the debt crisis and other economic problems, will certainly create opportunities,” Greenlight Re Chief Executive Officer Bart Hedges said on a February conference call. “We think that we’ll be able to find good partners that need capital support.”

Spanish banks are raising funds to bolster their balance sheets as they absorb losses from a government-ordered cleanup of their real estate assets. CaixaBank said last month it made 4.41 billion euros of provisions in the first nine months of the year to fully cover the 2.44 billion-euro requirements of a decree from February and 600 million euros of the 2.1 billion euros in charges it needs to make under another decree from May.

Insurance Float

The lender’s VidaCaixa unit will continue to service the policies.

Buffett built Berkshire over more than four decades as CEO from a failing textile maker into a company that sells insurance, hauls freight, generates electricity and operates manufacturing and retail businesses. The company had $47.8 billion (A:US) in cash at the end of September.

The billionaire has used insurance premiums held before claims payments are made to fund investments and acquisitions. The so-called float climbed to more than $70 billion last year from $39 million in 1970.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Frank Connelly at fconnelly@bloomberg.net


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