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Berkshire Hathaway lures four AIG execs in effort to push into E&S market

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Berkshire Hathaway lures four AIG execs in effort to push into E&S market

Berkshire Hathaway Inc.'s hiring of top executives from American International Group Inc. shows the Omaha, Neb.-based insurer intends to make a concerted push into the excess and surplus lines market.

Peter Eastwood, president and CEO of AIG property/casualty for the Americas; David J. Bresnahan, president of Lexington Insurance Co.; David Fields, head of global casualty for AIG; and Sanjay Godhwani, president of AIG's property/casualty group for Latin America and the Caribbean, left in late April to join Berkshire.

Last week, AIG named Robert Schimek to succeed Mr. Eastwood, and Alexander Baugh to replace Mr. Fields.

In a televised interview Thursday with Bloomberg Television, Berkshire Hathaway Chairman and CEO Warren Buffett said the former AIG executives will help Berkshire enter the commercial lines market “full bore” to complement its existing personal lines and reinsurance business.

“They are very, very good insurance people, and we would like to get into the commercial insurance business very big time,” Mr. Buffett said in the interview. “I think we have the group to do it.”

Nonetheless, Mr. Buffett bristled at the suggestion that Berkshire had “poached” the four executives.

“They came to us,” Mr. Buffett said. However, AIG CEO Robert Benmosche disputed that Friday in a Bloomberg interview.

Kevin Kelley, CEO of Ironshore Inc. in Boston and formerly president and CEO of Lexington Insurance, said in an interview with Business Insurance that the former AIG executives will enable Berkshire to increase its footprint in the E&S marketplace on a low cost, low risk basis.

“They're not afraid to acquire, but in this particular case, they chose to hire and do a startup,” Mr. Kelley said of Berkshire. “Ask anybody who has done that before, it's not easy.”

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He spoke highly of Ajit Jain, president of Berkshire's reinsurance group, who many market experts think helped land the former AIG execs.

“I think Ajit has again pulled a very smart move,” Mr. Kelley said. “It's not the first time that Berkshire's been in the E&S world. They're in other insurance businesses, and some of those businesses report to Ajit and some do not.”

Other market participants generally welcomed Berkshire's move.

“There's no doubt that this new facility will make its mark in the E&S sector,” said Timothy W. Turner, Chicago-based president and CEO of R-T Specialty L.L.C., a division of Ryan Specialty Group L.L.C. “This is a very talented and established team, and generally speaking, new innovative capacity is always welcome by the insureds, especially from specialty experts like this group.”

Likewise, Kevin Westrope, president and CEO of Kansas City, Mo.-based insurance wholesaler Westrope, respects the new team.

“There's certainly ample capacity in the marketplace, but there's always room for good capacity,” Mr. Westrope said. “They certainly picked some real pros and high-profile guys whom we think a lot of and who are well-respected in the marketplace.”

Nonetheless, Jett Abramson, Redondo Beach, Calif.-based senior vice president and director of complex casualty at Bliss & Glennon Inc., said Berkshire's expansion would take time.

“When you hire people that high up, you are really starting off with strategy,” Mr. Abramson said. “So I would imagine that for the next six to 12 months, they are going to be figuring out where they want to make their entry into the E&S marketplace.”

Mr. Abramson added that he expects Berkshire to gain market share gradually after entering the market.

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“Even if they did start writing business immediately, I would not expect it to have a dramatic impact,” he said. “Berkshire is usually a pretty disciplined underwriting company; they are not going to burn their way into the market.”

However, he said Berkshire's expansion may eventually provide competition to the rare and complex risks currently dominated by AIG.

“Berkshire has a massive balance sheet that allows them to take risks others cannot,” Mr. Abramson said.

“There may be some old 15- to 20-year Lexington renewals that now come under fire because there is now a competitor willing to take the same risks.”

Mr. Kelley said the new competition could lead to mergers and acquisitions in the marketplace.