Cover-More in deal with Warren Buffett-controlled group

Travel insurer Cover-More’s shares jumped after an underwriting deal with a Warren Buffett-controlled group.

Warren Buffett is showing a growing interest in the Australian market.

Travel insurer Cover-More’s shares surged over 5 per cent after it signed a heads of agreement for an underwriting deal with a Warren Buffett-controlled group.

The deal is expected to see Berkshire Hathaway Specialty Insurance Company (BHSI) serve as Cover-More’s primary underwriter in Australia and New Zealand.

BHSI is a subsidiary of Mr Buffett’s giant conglomerate Berkshire Hathaway, which provides a broad suite of insurance offerings worldwide.

The new plans expand on the two parties’ current partnership to market online travel insurance in the US and will see BHSI replace Munich Re’s Great Lakes as Cover-More’s lead underwriter in the local market after a global search.

The commercial terms will be similar to the now defunct Munich Re agreement, Cover-More (CVO) said, although with greater certainty of underwriting premium and a five-year term.

“BHSI consistently demonstrated that they sought an entrepreneurial and collaborative partnership in our dealings with them and it was clear that we were strongly aligned from the outset, both strategically and culturally,” chief executive Mike Emmett said.

The activity of BHSI in Australia is another example of Mr Buffett’s interest in the local market after he claimed a $500 million slice of general insurer IAG last year.

Meanwhile, Cover-More’s Mr Emmett also updated investors on progress in the group’s new strategy, noting the full benefits will take time to materialise, with the move to cut costs tipped to show up from the second half of fiscal 2017.

“We have also taken other actions to reduce the risk profile of the portfolio including pricing and wording changes,” he said.

“These have started to deliver some improvements although the consequential benefit to claims costs is expected to be experienced in the second half.

“In the aggregate, both these factors will result in a greater proportion of group earnings being delivered in the second half of FY17 than historically observed.”

At 11.40am (AEDT), Cover-More shares had jumped 5.2 per cent to $1.41.