In October 2006, National Indemnity, a unit of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), signed a landmark deal to assume the assets, liabilities, and operations of Equitas, formed by Lloyds of London to assume its liabilities on policies written prior to 1992. As part of the deal, Berkshire agreed to provide Equitas as much as $7 billion in reinsurance coverage.
Figuring out how Berkshire makes money on these types of deals could help Fools understand Berkshire's insurance business better -- and gain insight into Buffett's and Berkshire reinsurance chief Ajit Jain's methods.
To provide some illumination, I contacted Marc Mayerson, a Harvard Law graduate and partner of Washington, D.C., law firm Spriggs & Hollingsworth. Mayerson also leads several national American Bar Association seminars devoted to Equitas, and provides analysis of Equitas' financial reports on his blog, InsuranceScrawl. The following is an email interview conducted with Marc; notes in italics are my comments.
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