Buffett & VHI Make Deal That Will Save Taxpayers €90 Million

VHI, state owned company in Ireland, has come to terms on a deal with the most successful investor in the world. This move should create a way to save taxpayers as much as €90 million.

Warren Buffett – who has an estimated fortune of $53 billion (€40 billion) – is recognized as the person who directly signed the multimillion euro contract that in essence put this deal and affect.

This is the first time that Warren Buffett has done a deal in Ireland. The otherwise known “Oracle of Omaha” is known as an investor that does not typically like to do deals outside of the United States.

Berkshire Hathaway, insurance giant owned by Warren Buffett, is going to provide reinsurance coverage for up to €700 million worth of claims for VHI.

Up until now, the VHI just hasn’t had a reinsurance agreement in place – which is a way to effectively lay off some of their insurance risk to a company much larger than itself. Some of the claims and premiums risk accumulated by VHI customers is now Berkshire Hathaway’s responsibility. This means that VHI requires less money from the state, the Irish Independent tells us.

If VHI meets the agreement created with the European Commission about being regulated by the Central Bank, the government will then commit to investing as much as €100 million into the company by the end of 2013.

The Central Bank demands that the VHI adds more to its reserves before they will regulate it. The European Commission is also demanding that VHI meet all of the same rules that are applied to other insurers.

This deal – from the perspective of taxpayers – means that they will have to put less money into the VHI. About €80 million to €90 million less to be exact.

The €700 million deal is the largest reinsurance contract signed by a health insurer or general insurer anywhere throughout Europe during this year.

This is a one-year agreement but attempts are going to be made to extend it. If the deal can last for a three-year period, this will have a tremendous impact by lessening the VHI need for reserves from taxpayers. This will meet the Central Bank requirements and help taxpayers at the same time.

John O’Dwyer, the VHI chief executive, told the Irish Independent:

“The VHI is working towards getting authorization from the Central Bank and a key milestone in that plan is our partnership with Berkshire Hathaway.”

Warren Buffett is chief executive officer, chairman and president of Berkshire Hathaway. His conglomerate currently has a market capitalization of $290 billion.

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