Buffett to Buy Insurance Giant General Re
Investor Warren Buffett’s Berkshire Hathaway Inc. is buying General Re Corp. for $22 billion worth of stock, adding one of the world’s leading insurers of insurance companies to its portfolio.
In its announcement after the stock market closed Friday, Berkshire said it would let General Re operate independently of its other insurance operations, National Indemnity and GEICO.
News of the deal sent General Re’s stock up $52 per share to $275 in after-hours trading. Berkshire’s high-priced stock was up $1,900 per share at $80,900--a 2.4% increase. Based on Friday’s closing prices, the deal is worth $283.15 per share to General Re shareholders.
Buffett, the second-richest American behind Microsoft’s Bill Gates, has been attracted to insurance companies by their ability to invest premiums that are being held to pay off future claims. In announcing the deal, Buffett trumpeted the more than $24 billion worth of additional investments the acquisition would bring to Berkshire.
“General Re brings a lot of float to the party,” Buffett said at a news conference late Friday. Float is an industry term for the premiums that can be invested by insurers.
As a reinsurer, General Re writes insurance policies for other insurance companies that are trying to spread out their risk of having to pay big claims.
Buffett said the deal was worth the money because as part of Berkshire, General Re’s finances will be stronger and it will be able to issue policies it had avoided in the past.
“This combination virtually assures both Berkshire and General Re shareholders that they will have a better future than if the two companies operated separately,” Buffett said in a statement.
General Re Chairman and Chief Executive Ronald Ferguson said having Berkshire’s considerable capital will help the company as it underwrites large insurers.
“‘We believe that the insurance markets around the world are going to continue to grow . . . and thus the opportunity for the reinsurance business is great,” Ferguson said.
“Mr. Buffett has indicated that he is very, very willing, indeed eager, to invest in that.”
Berkshire, based in Omaha, has a portfolio that already includes Coca-Cola, Gillette, American Express and Walt Disney.
At $56 billion, the new company would have the largest net worth of any company in the United States.
General Re, based in Stamford, is already the largest reinsurer in the U.S. and the third-largest in the world. Its largest subsidiary, General Reinsurance, accounts for half of its sales. Its second-largest operating company is 78%-owned Cologne Re of Germany, which was founded in 1846 and is the world’s oldest reinsurer.
The deal, which is subject to approvals by regulators and shareholders of both companies, is expected to be completed in the fourth quarter.