Insurance Australia Group has struck a 10 year partnership with Warren Buffett's Berkshire Hathaway in a deal that will see the US conglomerate take a $500 million stake in the insurer.
The partnership will see Berkshire Hathaway receive 20 per cent of IAG's gross written premium and pay 20 per cent of its claims for the next decade.
Berkshire will also buy $500 million worth of IAG shares via a placement that will see it emerge with a 3.7 per cent stake in the company.
News that the man routinely dubbed "the world's greatest investor" would be joining its share registry boosted IAG shares, which gained 24 cents, or 4.31 per cent, to $5.81.
IG market strategist Evan Lucas said the partnership and investment, the first of its kind for Mr Buffett in Australia, was a strong endorsement for IAG's strategy Asian growth strategy.
"It's a very big tick of approval to the structure that IAG has got and a very big tick of approval to the insurance industry in this country as well," he said.
IAG is heavily focused on expanding into Asia and has joint ventures and stakes in insurers in China, Vietnam, India, Malaysia, Thailand and Indonesia.
In a video message, Mr Buffett said he expected the partnership to last well beyond the 10 year horizon of the deal.
"Even though this contract runs for 10 years I expect for decades and decades and decades to come that both companies will benefit in many ways that we can't even, perhaps, visualise now," he said.
"I can't tell you how delighted I am."
Berkshire Hathaway's insurance operations are among the largest in the world and the company has provided reinsurance to IAG since 2000.
Under the terms of the agreement, IAG has the option to lift Berkshire's stake through the placement of up to five per cent of its issued capital in the next two years.
But Berkshire will not be able to lift its holding above 14.9 per cent without the approval of the insurer and Australian authorities.
The agreement will also see IAG buy Berkshire's local personal and small and medium enterprise insurance businesses while the conglomerate will buy the rights to IAG's large-corporate property and liability insurance business in Australia, though IAG says both transactions are worth less than $50 million.
IAG expects the partnership to reduce its capital requirements by $700 million over the next five years, freeing up money for further investments in Asia.
"Certainly it helps us to take volatility out of our results ... but it also gives IAG further capital flexibility and diversification, which does give us significant scope for future growth in our target markets," Chief executive Mike Wilkins said.
IAG expects the deal two add around 200 basis points to its insurance margin - the profit it makes on premiums - in the 2016 financial year.
It is forecasting an insurance margin of between 14 and 16 per cent for the year, up from an expected range of between 10.5 and 12.5 per cent this year.
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