Value Collector
Have courage, and be kind.
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An Interesting deal Berkshire has Put together.
Key Points.
Berkshire Injects $500 Million cash into IAG to secure a 3.7% Ownership Interest.
A premium splitting deal, where Berkshire takes 20% of the premiums and pays 20% of claims, effectively makes the IAG Policy Portfolio a 20/80 joint venture between Berkshire and IAG.
IAG maintains ownership of its brands and has the responsibility for selling policies.
Berkshire to Pay IAG a commission on the 20% of premiums IAG hands over.
Berkshire to Pay 20% of IAG operating costs.
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What does Berkshire get -
1, Dividends and capital growth on the IAG shares it holds.
2, Investment profits from the float it will generate by holding it's share of premiums until it has to pay claims
3, Potential to earning a profit margin on the premiums if claims end up being less than Premiums.
What does IAG get -
1, Investment profits from the float on the 80% of premiums they retain, until they have to pay claims
2, Commission on the 20% of premiums they hand off to berkshire
3, The deal unlocks capital that they will be able to invest, and generate better earnings
4, They can write more insurance without having to pay as much reinsurance fees to outsiders.
5, Potential growth into other markets and speciality insurance areas that would not have been possible without the capital and risk spreading the Berkshire deal provides.