Berkshire to Back Plan for Lloyd’s Consolidation

July 15, 2004

Nothing succeeds like success, and Lloyd’s recent successes have apparently attracted the attention of the world’s premier investor, Berkshire Hathaway’s Warren Buffett.

Berkshire is sitting on a mountain of cash, some $34 billion. Although no official announcement has yet been made, numerous reports confirm that Berkshire, who already has some sizeable stakes in the Lloyd’s market (around $130 million), will financially back a plan to raise £125 million ($232 million) to invest in smaller Lloyd’s syndicates.

The plans call for consolidating these syndicates under a single entity, allowing them to continue to function individually, but with a much stronger capital base, and presumably a unifying management structure and oversight authority.

According to London’s Financial Times Berkshire will acquire a 25 percent stake in Capital Insurance Holdings, led by Michael Wade, former CEO of CLM, which the FT described as “a Lloyd’s vehicle, which merged with another, SVB Holdings, in 1999.”

The first investment targets Euclidian, a Lloyd’s agency in which Buffet is already involved. It illustrates the problems of smaller Lloyd’s syndicates, who want to raise money, but who are too small to obtain the type of investment they need. Capital plans to acquire 25 percent of Euclidian.

A number of analysts have concluded that the additional Berkshire investment will also increase General Re’s presence as a leading reinsurer in the Lloyd’s market. They assume that any companies acquired by the group would have a privileged connection to the world’s third largest reinsurer.

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