American International Group Inc. (AIG:US) has decided against signing new reinsurance contracts with Berkshire Hathaway Inc. (A:US) after Warren Buffett’s company started a commercial insurer competing against AIG, according to a person with knowledge of the decision.
AIG stopped entering into the deals with Berkshire units including National Indemnity Co. and General Re about two months ago, said the person, who asked not to be identified because negotiations are private. Existing contracts aren’t affected, the person said.
Buffett said in May he was planning to add sales of commercial insurance after hiring executives from AIG including Peter Eastwood, who ran the company’s property-casualty operation in the Americas. The move challenges New York-based AIG in one of its main markets and expands Berkshire beyond its strengths in U.S. personal auto coverage and reinsurance.
“We would like to get into the commercial-insurance business very big time,” Buffett said in a Bloomberg Television interview in May.
Berkshire backed more of AIG’s risks than any other reinsurer, with $2.19 billion recoverable under the contracts, including reserves, according to a regulatory filing with data as of Dec. 31. That represents about 8.5 percent of the reinsurance total at New York-based AIG. The figure includes a 2011 accord in which AIG agreed to pay Berkshire about $1.6 billion when Buffett’s company took on risks tied to asbestos.
Buffett has said some of the AIG managers contacted Omaha, Nebraska-based Berkshire seeking opportunities.
That account “kind of sounds a little strange to me,” AIG Chief Executive Officer Robert Benmosche, 69, told Bloomberg Television’s Betty Liu in May. “We have plenty of talent. And so, Warren wants to take a few people, and wait for them to call him to build a business, god bless him.”
Buffett, 83, didn’t respond to a request for comment left with an assistant. Jon Diat, a spokesman for AIG, declined to comment. The Insurance Insider reported earlier that AIG planned to cut reinsurance ties with Berkshire.
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