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Warren Buffett’s Berkshire Hathaway to buy AIG?

Little more than 24 hours after chief executive Peter Hancock revealed plans to leave the insurer, Wall Street is already playing fantasy M&A with the group.

Keefe, Bruyette & Woods was pushing the idea on Friday afternoon that Mr Buffett should swoop on his stricken rival, and install his specialty insurance head, Peter Eastwood, as CEO.

“In our view, AIG could be significantly more stable and more valuable under a Berkshire Hathaway ownership scenario than on its own, which could justify a decent premium to the current share price,” wrote KBW analysts led by Meyer Shields.

Berkshire is a powerhouse in reinsurance and consumer policies – including through the car underwriter Geico – but until recently it has avoided the type of big ticket property and casualty cover that AIG specialises in.

Yet Berkshire has been making an aggressive push into AIG’s turf, poaching several of its executives to run the recently established Berkshire Hathaway Specialty Insurance.

And AIG’s business is already familiar to Berkshire. The two companies this year struck one of the industry’s biggest risk-transfer deals when AIG agreed to pay Berkshire about $10bn for backstop reinsurance protection.

A takeover bid for AIG, which has a market capitalisation of $61.5bn, would be taking the logic rather further, however.

It would transform the global insurance industry, as well as Berkshire. KBW notes an acquisition would be likely to result in Berkshire being deemed a “systemically important” company by Washington – a tag that Mr Buffett has, so far, managed to avoid.

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