Posted on 24 Feb 2012
Warren Buffett's Berkshire Hathaway is pushing into the Thai reinsurance market and selling cover for higher rates, taking advantage of the retreat of competitors such as France's CCR after they suffered losses from last year's floods.
The presence of the U.S. conglomerate in the Thai market was confirmed by several sources in the insurance industry, including one who said Berkshire began doing business in the country in late December.
"Obviously a number of reinsurers have been affected... some decided to pull out entirely. Only the new guy (Berkshire Hathaway) who had not much money involved, can come in and offer cover," said one reinsurance executive in the region.
Berkshire's strategy in Thailand, which had a non-life reinsurance market of roughly $1 billion in premiums in 2010, is being led by top reinsurance executive and potential Buffett successor Ajit Jain, and is opportunistic, the sources said.
Berkshire will offer to write 100 percent of the business or none at all, a third executive said.
The sources quoted in this story declined to be named for fear of damaging their relationship with Berkshire.
Berkshire did not respond to a request for comment for this story. It is due to release its annual letter to shareholders on Saturday. The letter typically references Jain and describes some of Berkshire's insurance and reinsurance activities.
Berkshire's arrival in Thailand was previously reported by The Insurance Insider trade publication, which wrote that Berkshire is underwriting losses over a set amount, and is monopolizing loss-sharing arrangements. Berkshire's loss-sharing arrangements only allow syndication of up to 30 percent of losses to other reinsurers, according to the trade publication.
"They have the capacity to do it on their own, and, quite frankly from their perspective, why would you want to share it?" the third executive said.
"Folks like Ajit Jain are very smart. They go in when the rates are extremely high and they leave when the rates come down."
Jain has an appetite for off-beat policies. He once wrote a policy protecting the Texas Rangers if baseball player Alex Rodriguez were ever permanently disabled; he wrote another policy guaranteeing a $1 billion prize being offered by an Internet company, according to Berkshire's annual letters.
In his 2010 annual letter to shareholders, Buffett wrote that Jain "insures risks that no one else has the desire or the capital to take on...yet he never exposes Berkshire to risks that are inappropriate in relation to our resources."
Buffett praised Jain for adding billions of dollars to the value of Berkshire and compared Jain to Superman: "Even kryptonite bounces off Ajit," he wrote.
"There's a lot of deference to Ajit Jain," the third executive said. "He's quite a rock star in the reinsurance world. People don't want to be crosswise him and he's very secretive about what he's doing -- and rightfully so. He doesn't want people to be following him and taking his business."
Berkshire has struck other non-insurance related deals during moments of crisis and those have paid off handsomely.
In August, Berkshire agreed to invest $5 billion in Bank of America Corp. During the financial crisis it also helped prop up Goldman Sachs and General Electric.
The Goldman deal famously paid Berkshire $15 a second in dividends until Goldman bought out Berkshire last year.
CAUGHT BY SURPRISE?
Thailand this week said its economy grew just 0.1 percent in 2011, dragged down by the country's worst flooding in half a century that damaged farmland and inundated big industrial zones in October, hitting thousands of factories, particularly car and electronics makers. Many of the affected firms are still shut and may take a while to reopen.
Insured losses from the floods are seen topping $15 billion but it will be months before individual insurers and reinsurers know how they have fared.
"We don't know our losses yet. It will be another six months before we have meaningful figures," the reinsurance executive said. "It's all guesswork right now."
Japanese insurers, which had insured factories operating in Thailand, were among the hardest hit. Japan's top three property-and-casualty insurers, MS&AD (8725.T), Tokio Marine (8766.T) and NKSJ (8630.T), posted a combined loss of about 370 billion yen ($4.7 billion) in the nine months ended in December, dragged by a total 331.5 billion yen in Thai flood-related costs.
France's CCR stopped writing new business in Thailand following the flooding. Lloyd's Syndicate 1965, which operated solely in Asia, also stopped accepting new business, and Lloyd's Hardy Underwriting undertook a "strategic review" of its operations following losses from catastrophes across Asia.
The rumor mill is churning out a longer list of other insurers and reinsurers that could follow suit.
"I don't think most underwriters fully understood the full risk over there and maybe they're being caught a little bit by surprise," .
Rates have more than doubled for property and industrial insurance and earthquake, storm and flood coverage is being sold separately, if at all, the reinsurance executive said.
According to a report this month from insurance credit ratings agency A.M. Best, flood policies are now being sold separately and premiums are expected to double or triple.
Rates for excess-of-loss protection are seen rising 500 percent to 1,000 percent, policies are expected to cap certain types of losses at 10 percent to 20 percent of the sum insured, and deductibles of 10 percent are also expected.
Besides Berkshire, other foreign capital is also finding its way into Thailand. Canada-based financial services firm Fairfax in January said it would buy a 25 percent stake in Thai Reinsurance Pcl THRE.BK for $70 million.