Everything You Need to Know About Insurers: The Specialistshttp://www.fool.com/investing/general/2013/10/23/everything-you-need-to-know-about-insurers-special.aspx Jessica Alling
October 23, 2013
Insurance can be a complicated business. And between the various divisions -- property and casualty or life and health -- there are a few customer-needs outliers that require the help of some focused specialists. Today we'll explore a few of the companies that delve into the higher risk markets in order to meet those client needs, and also reap higher rewards.
Berkshire Hathaway: reinsurance
One recent reinsurance deal that garnered public attention back in early 2011 was American International Group's (NYSE: AIG) unloading its remaining asbestos-related liabilities onto Berkshire Hathaway for a $1.65 billion fee. The deal allowed AIG to assuage investor concern over continued charges from asbestos claims on old policies before the company's "re-IPO", when the Treasury was to sell its first chunk of shares. Though the large fee did not match the outstanding liability -- measured at $3.5 billion in potential claims -- it did allow Warren Buffett time to invest that float until new claims came in.
Though the relationship between the two insurers has since soured, Berkshire Hathaway still insures the largest share of AIG''s reinsurance business, at 8.5%. And funnily enough, the next two companies, Swiss Re and Munich Re, are both partially owned by Berkshire.
AIG: private mortgage insurance
For anyone who's bought a house without putting the requisite 20% down, private mortgage insurance is familiar. It's the policy added to your monthly mortgage costs that protects your lender in case you default on your payments. With home prices rising and the housing recovery not yet in full steam, the likelihood of private mortgage insurance policies becoming more common requirements of new mortgages is high.
First American: title insurance
This is where First American Financial (NYSE: FAF), one of the nation's leading title insurers, would step in.When purchasing a home, it's usually customary to have a title search completed, which would look at the history of the property and raise any issues, including any outstanding liens (i.e. a second mortgage from XYZ Bank Co.). When the title search is complete, title agents would try to resolve small issues (i.e. unpaid taxes, etc.) and alert you to any major ones. But if something wasn't recorded or was missed, that's when you would need title insurance. The insurance policy is meant to protect your financial interest in the property and would back you in any legal proceedings. If it was found that the lien from XYZ Bank Co. was legitimate and you lost the property, you would be reimbursed for the amount of the policy.
Markel: niche market property and casualty