Report Berkshire Returns HIH Premium Payment

The Wall Street Journal reported that Berkshire Hathaway’s National Indemnity Co. has turned over a $2 million premium payment to the Australian liquidator in charge of the bankrupt company HIH Insurance.

Once Australia’s second largest insurance group, HIH collapsed in March 2001 with losses of around A$5.3 billion (U.S. $4.1 billion). Subsequently the liquidator charged that several deals involving Berkshire Hathaway’s General Re and Hannover Re had been designed to make HIH’s increasingly shaky financial position look better than it was.

At the time both Gen Re and Hannover denied that anything improper had occurred, but now that finite reinsurance contracts are being re-examined – especially those between Berkshire’s operating companies and AIG – they have come under increasing suspicion. Berkshire’s legendary founder and CEO Warren Buffett is scheduled to talk to investigators about these transactions in April (See related articles).

According to the WSJ, the deal in question involved a finite reinsurance policy that National Indemnity wrote for FAI, which was subsequently acquired by HIH in 1998, that apparently transferred little or no risk. Ajit Jain, whom Buffet has often described as a risk management genius, handled the transaction. He oversees special risks for Berkshire.

The policies written by Gen Re and Hannover, which the liquidator has argued are of the same type, are still subject to litigation.