Berkshire Hathaway makes its way to Australia
As part of its latest plan to extend its insurance business into Australia, specialty insurance giant Berkshire Hathaway will take a 3.7 per cent stake in Insurance Australia Group Ltd. This deal will reduce IAG’s capital requirements, which can be either directed to new acquisitions, invested in its exiting business or returned to shareholders.
Through this agreement, Berkshire Hathaway will pay $500 million to Sydney-based IAG for 20 per cent of the latter’s insurance premium payments, and will have authority to make 20 per cent of claims on policies being covered over a period of 10 years. It is the company’s first-ever investment in an Australian company.
Because of this, IAG’s share price increased nearly six per cent.
“We view this as a step change in our relationship with Berkshire Hathaway,” said IAG chief executive Mike Wilkins. “We look forward to the benefits that will flow from the combination of IAG’s underwriting skills, supply chain management expertise and deep customer knowledge, coupled with Berkshire Hathaway’s specialty insurance expertise.”
But business expansion in Australia isn’t a new idea for the company. Berkshire Hathaway Business Insurance, which was founded in 2013, has quietly been in the process of expanding its insurance operations as it attempts to capitalise on a rapidly growing Australian market.
Despite other insurance giants like MetLife and Prudential Financial already doing business in Australia, a change in demographics has opened the door for new business in the region. Berkshire Hathaway CEO and chairman Warren Buffett said he intends on investing the capital created from the deal in purchasing stakes in other Australian businesses such as banks, something he has done for over 50 years.
Buffet believes the partnership with IAG will help Berkshire Hathaway’s entrance into the Asia-Pacific region.
“Even though this contract only runs for 10 years, I expect for decades and decades and decades, we will benefit from this,” Buffet said in a statement. “I am 84 years old and this is my first investment in an Australian company—I have been very derelict, but it has been worth waiting for.”
Thanks to the large amount of funding brought in by its insurance units, Berkshire Hathaway is now a conglomerate of over 90 subsidiaries investing money in insurance companies, which totaled about US$83.5 billion as of late March.
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Although the company runs several different types of businesses, insurance remains on the top due to its ability to generate a maximum return on equity, allowing it to continue developing this business.
Under terms of the deal, IAG and Berkshire will share profits from each other’s local businesses. IAG will buy Berkshire’s local personal and SME business lines, with Berkshire acquiring the renewal rights to IAG’s large-corporate and property and liability insurance business in Australia. According to IAG, this represents less than one per cent (or nearly $50 million) in annual gross written premiums.
Timeline: India takes unicorn leap with six in five days
We chart an historic week in India’s tech industry, where in just five days, between 5-9 April 2021, the country achieved six new unicorns, bringing India’s total to 10 in 2021 to date, an immense unicorn leap from just seven in 2020 and six in 2019.
April 5: Meesho
India’s first social commerce unicorn, Meesho raised US$300m from SoftBank, Facebook and Shunwei Capital, giving the Bangalore-based startup a US$2.1bn valuation, a threefold jump from its previous funding round in 2019. Founded in 2015 by two IIT-Delhi graduates, Meesho connects producers and resellers, helping small businesses sell through social media. It has 45m customers and has enabled 13m entrepreneurs to start their online businesses with no investment.
April 6: CRED
Founded just over two years ago, Bangalore-based credit card repayment app CRED raised US$215m from Falcon Edge Capital and Coatue, nearly trebling its valuation to US$2.2bn from its January US$80m round. Allowing customers to pay off their credit card debt while earning CRED coins which they cash in for rewards, CRED has grown rapidly during COVID-19, doubling its customer base to nearly 6 million in a year.
April 7: API Holdings / Groww
The first epharmacy startup to gain unicorn status, PharmEasy (API Holdings), which has digitised 60,000 brick and mortar pharmacies and 400 doctors across India, raised US$350m in a round led by Prosus Ventures. Founded by four former Flipkart employees as a way of making investing simple, investment platform Groww became India’s second-youngest fintech unicorn, raising US$83m in Series D funding led by Tiger Global, quadrupling its previous round in September.
April 8: ShareChat
New Delhi-grown social media startup ShareChat, founded in 2016 by Mohalla Tech raised US$502m from Lightspeed Ventures, Tiger Global, Twitter and Snap taking its raised total over six rounds to US$766m and pushing its valuation to US$2.1bn. The funding will be used to grow its user base and short video platform Moj, which launched in 2020 following TikTok’s ban in India. The regional language startup claims 280m users.
April 9: Gupshup
AI-led conversational message startup joined the unicorn club after raising US$100m from Tiger Global giving it a ten-fold valuation of US$1.4bn. The smart messaging platform, which has seen accelerated growth during the pandemic, was founded in Bangalore in 2005 by serial entrepreneur Beerud Sheth, whose online freelancing platform Elance is now listed. Gupshup’s API enables 100,000+ businesses to build messaging and conversation experiences across 30+ communication channels.