The world’s fourth largest public company, Berkshire Hathaway Inc., led by Chairman and CEO, Warren Buffett, has invested in South Australia’s Motor Accident Commission.
As of January 1, Berkshire Hathaway’s Reinsurance Division took over management of the MAC’s ‘back book’ of Compulsory Third Party (CTP) vehicle insurance claims.
In October last year, South Australian Treasurer, Rob Lucas, announced the SA Government would wind down the MAC, a ‘natural consequence’ of the former Labor Government’s decision in 2014 to privatise the provision of CTP vehicle insurance in SA – which had been MAC’s core function.
“Berkshire Hathaway’s reinsurance arm, National Indemnity Company, is the only reinsurance company in the world with the same AA+ credit rating as South Australia, offering SA policy claimants security over future claims as well as excellent value for taxpayers, who no longer bear the risk of movements in investments and claims outcomes,” Mr Lucas said.
“For example, this year’s Mid-Year Budget Review will include a significant reduction in returns to the budget from MAC.
“Put simply, assets and liabilities from MAC will be transferred to Berkshire Hathaway’s National Indemnity Company, so that all the risks of managing MAC’s liabilities will be transferred to Berkshire Hathaway.”
Part of the arrangement will see $300 million of the reinsurance premium retained in South Australia for local funds management, with at least $100 million retained for five years.
The SA Government will consider a range of options to help implement a key election commitment to grow local funds management activity.
Mr Buffett said he looked forward to the potential of growing his business in South Australia.
“We are thrilled to have agreed terms with South Australia to reinsure their auto liabilities, and we would love to find more opportunities to do business there,’’ he said.
Berkshire Hathaway Inc. also has significant worldwide interests in energy, utilities, infrastructure, rail, retail and manufacture.
MAC ceased writing new CTP insurance policies from 1 July 1 2016, but has remained responsible for managing a ‘back book’ of claims issued up to and including 30 June 2016.
The MAC Board has approved acceptance of the Berkshire Hathaway bid. Berkshire Hathaway submitted to the former Labor government an unsolicited proposal to manage the ‘MAC back book’.
This bid was only valid for an off-market exclusive transaction.
Treasury engaged respected financial advisory firm Moelis, which concluded the proposal was unique and presented as value for money. Moelis recommended approval for the proposal.
The existing Allianz claims management contract will remain in place at least until its current expiry date, 30 June 2019. Berkshire Hathaway will explore long-term arrangements with Allianz. Claimants will not experience any change in their claims management experience.
After the deal is concluded, budgeted returns from MAC to the budget will reduce by up to an estimated $68 million over the three-year period from 2019-20.