News Comment

Thursday 28 August 2014

Be cheerful, the Sage of Omaha doesn't back losers

Published 17/06/2014 | 02:30

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Warren Buffett
Warren Buffett

WHEN a man as rich and successful as Warren Buffett does a deal with an Irish company it is good news.

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When that company is as important as the VHI – with more than one million customers – there is even more reason to be cheerful.

Mr Buffett does not back losers.

That explains why he has a fortune estimated at $58bn. And even when you translate it into euros – €43bn – it is still impossible to get your head around such a large sum.

Suffice to say, you would need a very large warehouse to store all that money if it was in cash.

The four-year agreement with Mr Buffett's Berkshire Hathaway conglomerate to take over some of the claims risks of the VHI is set to save the taxpayer up to €200m, and eases some of the pressure on premium hikes.

That is because the backing from Buffett gives the VHI a clean bill of health, but also helps boost the reserves of the VHI.

One of its key failings up to now has been insufficient reserves. Without this deal the taxpayer would have had to boost the VHI's reserves.

It is an achievement to get the company the Sage of Omaha leads to commit to a four-year deal with the VHI, and should help it stand on its own feet.

The problem with the VHI for too long has been that it has relied on an implicit State guarantee.

The financial fillip the Buffett deal gives the VHI should help it be approved by the Central Bank as a stand-alone insurer, no longer depending on the State to back it up.

Recently VHI has strived to keep its premium rises in single percentage figures, unlike its competitors.

The hope now is that Buffett's backing will embed those low premium rises.

Irish Independent

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