European Commission Approves GAUM Sale to Berkshire, Converium, Munich Re

March 3, 2003

The European Commission, the European Union’s regulatory authority, has approved the sale of a number of stakes in Global Aerospace Underwriting Managers Limited (GAUM), a consortium that insures airlines and airplane manufacturers, to Berkshire Hathaway, Converium and Munich Re.

London-based GAUM is one of the world’s biggest underwriters of aviation risks, covering many of the largest airlines as well as Boeing and Airbus with around $1 billion in annual premiums. U.K. insurers Aviva PLC and Royal & Sun Alliance both agreed to sell the major portion of their stakes in the consortium last year. Aviva is pulling out of GAUM entirely, and R&SA will reduce its 39.9 percent holding to around 10 percent.

Chubb and CNA are also withdrawing from the pool. When the deal is completed Berkshire will have around a 40 percent stake in GAUM, Converium and Munich Re will each have 25 percent shares, while R&SA will retain a 10.1 percent stake.

According to reports each of the major stakeholders will provide 25 percent of the GAUM’s capacity. R&SA will reduce its capacity commitment from 28 percent to 9.25 percent. Japanese insurer Tokio Marine will provide an additional 9 percent and Mitsui Sumitomo will provide 6.75 percent.

The EC’s ruling clears the way for the restructuring of GAUM, and is widely seen by analysts as strengthening the consortium’s financial condition. The EC acknowledged that the three major stakeholders would control a significant portion of the market for aviation insurance, but determined that there would still be enough significant competition.

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