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Buffett Unit to No Longer Insure Lenders as Bank Failures Abound

Posted on 10 Sep 2008

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A Berkshire Hathaway subsidiary's move to stop insuring bank deposits above federal limits apparently reflects Warren Buffett's worries about future bank failures. Kansas Bankers Surety in Topeka is getting out of the business of backing deposits above the $100,000 limit guaranteed by the Federal Deposit Insurance Corp. for many bank accounts 
According to Chuck Towle, a senior vice president at Kansas Bankers, the company will exit the business entirely over time.  
"Eventually, we aren't going to be covering any deposits in banks,'' Towle said in an interview today. 
The move reduces Omaha, Nebraska-based Berkshire's risk from bank failures and will affect customers in 38 states. Eleven U.S. lenders have been seized by state and national regulators this year as mortgage markets collapsed. The FDIC counted 117 banks as "problem'' lenders in the second quarter. The agency typically doesn't say which companies are on its list. 
Towle said there was no set period for phasing out the business and wouldn't comment on existing relationships with banks. The Wall Street Journal reported earlier today that the unit was scaling back, saying the order came from Buffett. 
Towle declined to comment on Buffett. Jackie Wilson, a spokeswoman for Buffett, declined to comment. 
The move may signal that Buffett expects further banking losses after saying in June that he believes the U.S. is experiencing "stagflation,'' a slowing economy with rising inflation. 
Buffett, whose Berkshire gets about half its business from insurance operations, said in last year's letter to shareholders that while he is willing to risk a $6 billion payment on a single storm, he won't ``take on even very small exposure at prices that don't reflect our evaluation of loss probabilities.'' 
Kansas Bankers has 18 employees, making it the second-smallest of Berkshire's operating companies, according to the company's annual report. The business earned $4.43 million in the first half of this year on policy sales of $11.2 million, according to Oldwick, New Jersey-based ratings firm A.M. Best Co. Berkshire posted net income of $3.82 billion in the first half.