Tuesday 16 June 2015 2:22 am

Warren Buffett splurges $500m on Australian insurer IAG

Warren Buffett, the legendary investor and second-richest man in the world, is clearly interested in protecting his fortune, after he spent AU$500m (£248m) on the Insurance Australia Group (IAG).

Under the deal, Buffett will end up with a 3.7 per cent stake in the company, while IAG will have options to place another five per cent of its expanded capital to Berkshire Hathaway, Buffett's investment vehicle, within the next two years. In turn, Buffett has agreed not to increase his shareholding in the company to above 14.9 per cent during the period of the partnership agreement.

As part of the deal, IAG will buy the small and medium business insurance businesses owned by Berkshire Hathaway. Buffett, meanwhile, will buy property and liability insurance businesses owned by IAG aimed at larger corporations.

"We have worked with IAG for more than 15 years and over that time we've developed a good understanding and respect for their people, what they offer and the way they do business. For us, they are a natural partner," said Buffett.

"Our strategic partnership… will help fast-track our entry into [the Asia-Pacific] region," he added.

Buffett has clearly been eyeing Australia's burgeoning insurance sector for some time. IAG has interests in India, Thailand, Malaysia, China, Vietnam and Indonesia, with a 49 per cent stake in a general insurance joint venture with State Bank of India.

IAG chief executive Mike Wilkins also said the company was "investigating further opportunities" in China.

"China is a source of enormous potential growth for IAG," he said.

“Asia continues to represent an important plank of IAG's strategy given the relatively low penetration of insurance in our target markets. This, along with the rising affluence and consumption of the emerging middle-classes, presents an opportunity which we believe all forward-thinking Australian companies should pursue,” he said.