Buffett's company on shortlist for quake hit AMI Insurance

AMI Insurance. Photo / APN

Berkshire Hathaway, the giant US firm controlled by legendary investor Warren Buffett, is understood to be on the shortlist of buyers for earthquake-hit AMI Insurance.

The sale process for AMI is now well advanced and John Sloan of Sloan Risk Management in Wellington said he expected a deal would be announced soon.

Tower Group, Suncorp and Insurance Australia Group (IAG) are seen as contenders with Tower the favourite. An announcement of the successful buyer is expected within the next month.

However, in a surprise development, the Business Herald understands Omaha, Nebraska-based Berkshire Hathaway is also in the hunt.

The company's interest is seen as positive because as well as being an insurer, it is also involved in the reinsurance industry. The reluctance of reinsurers to write new cover for New Zealand insurance companies has proved a roadblock to rebuilding work in Canterbury and has seen insurance premiums rise sharply across the rest of the country.

Buffett and his executives are regarded as some of the sharpest investment minds in the world who have an eye for undervalued businesses.

While AMI has huge liabilities related to the Christchurch earthquakes, they are likely to be ring-fenced from the rest of the business if it is sold. AMI has an enviable car insurance business and a valuable distribution network for that and its general insurance operation.

Tower chief executive Rob Flannagan yesterday told the Business Herald his company remained interested in AMI - "we have been for some considerable time".

Among the other bidders, IAG owns NZI and State Insurance, two of New Zealand's biggest and Suncorp has Vero.

Goldman Sachs has been advising on the sale after the Christchurch earthquakes devastated AMI and forced it to seek a Government bailout.

AMI has more than a third of the Christchurch residential market and the Government has made $500 million available to the business to recapitalise it and take ownership if needed. However, it is understood the price under discussion is in the vicinity of $150 million.

Sloan noted how IAG's recent bond moves raised the prospect of that business being a buyer but others in the industry rejected that and said it was wrong to link the bond issue to AMI.

Last month, IAG increased the size of its New Zealand retail bond offer by $75 million to $325 million, citing strong indicated investor demand.

IAG initially sought $150 million subscriptions but following strong demand it pushed that out to $325 million, paying around 7.5 per cent annual interest for the next six years.

IAG indicated the $325 million gave it added flexibility to manage its future refinancing requirements.

Nick Hawkins, IAG's chief financial officer, said the bond issue in New Zealand would maintain a diverse capital base and would act as a natural currency hedge for its New Zealand operations.

Prime Minister John Key said in September the "widespread interest" being shown in AMI by buyers was an encouraging sign the insurance industry regards Christchurch as an attractive market.

Finance Minister Bill English, Treasury, and AMI were unwilling or unavailable to comment. additional reporting Jamie Gray