Warren Buffett and Berkshire Hathaway come to the rescue of 34,000 Lloyd's Names through a groundbreaking deal that should allow them to "sleep soundly." Lloyd's Names are individuals who formerly underwrote the insurance market's policies.
The GBP3.8 billion deal with a Berkshire Hathaway (BRKA) insurance vehicle is being structured in such a way as to end uncertainty faced by Names that they could have to pay out for future claims on the London market.
Jill Treanor writes in Saturday's Guardian:
The Names -- wealthy people, including celebrities, who suffered painful losses in the early 1990s - may even receive a payout as a result of the complex transaction with Equitas, the insurance vehicle set up as part of the Lloyd's rescue plan in 1996.
Scott Moser, chief executive of Equitas, said: "Over the last 10 years what Names have said most often is 'I just want to sleep easy.' We think we have just bought them the world's best mattress."
Hugh Stevenson, chairman of Equitas, added: "If, as we hope, the transfer of liabilities from the reinsured Names is achieved, they will no longer have any liability whatsoever under policies reinsured by Equitas. They have achieved finality and will be able to sleep soundly knowing that this chapter is closed."
According to Lloyd's, the average age of a Name is now 78. So you know these folks have been eager to get something like this done.
Forgive me for using the old "win-win" term to describe this deal.
But this deal looks good for the Names and Equitas. They look to be freed of any liability and receive up to GBP150 million (before transaction costs).
And it looks good for Buffett and Berkshire Hathaway. Berkshire will now manage Equitas and receive GBP358 million in return for providing the Names with an additional GBP3 billion of reinsurance cover. Buffett thinks Berkshire will fully assume the liabilities and assets by 2009.