Berkshire, Fairfax May Benefit by Buying XL, FBR Says

Warren Buffett’s Berkshire Hathaway Inc. and Prem Watsa’s Fairfax Financial Holdings Ltd. may benefit from buying XL Group Plc and boosting the insurer’s investment returns, according to FBR Capital Markets.

Berkshire and Fairfax could “take a more aggressive approach to investing XL’s invested asset base, as these larger companies have higher risk tolerances and a greater ability to absorb market volatility given their capital positions,” wrote Bijan Moazmi, an analyst at Arlington, Virginia-based FBR, in a note to clients today.

Buffett said Berkshire would be prepared to spend as much as $10 billion on its next acquisition at the company’s annual meeting in Omaha, Nebraska, on May 1. Fairfax agreed to buy Zenith National Insurance Corp. for about $1.3 billion in cash on Feb. 18, the biggest deal in Fairfax’s two decades under Watsa.

Insurance takeovers are headed for the biggest year since the peak of the last merger boom as financial-services firms from Bank of America Corp. to Aegon NV of the Netherlands jettison assets. Deals in the industry have jumped 60 percent to $44.8 billion so far this year, up from $28 billion in the same period of 2009, according to data compiled by Bloomberg.

XL shares fell 1.8 percent to $18.76 at 4:12 p.m. in New York. Berkshire’s Class A shares slipped 0.9 percent to $121,150. Fairfax increased 0.1 percent to $403.70.

XL’s Premium Volume

Carrie Kizer, a spokeswoman for Berkshire Hathaway, didn’t immediately have a comment. Paul Rivett, a spokesman for Toronto-based Fairfax, didn’t immediately return a phone call and e-mail for comment. Carol Parker Trott, a spokeswoman for XL, declined to comment.

XL, which sells property, casualty, and specialty insurance and reinsurance, has a market capitalization of about $6.5 billion. The company operates in 27 countries, with the most premium volume originating in the U.S., Europe and Bermuda, and 55 percent of its volume coming from outside the U.S. in 2009, according to FBR.

The Dublin-based firm’s geographic diversity makes it an attractive acquisition for an international insurer, Moazmi said. He named Munich Re, Swiss Reinsurance Co. Ltd., Allianz SE, and Zurich Financial Services AG “the more likely suitors.”

Terese Rosenthal, a spokeswoman for Munich Re, Alanya Francis, a spokeswoman for Swiss Re, Sabia Schwarzer, a spokeswoman for Allianz, and Sean Kevelighan, a spokesman for Zurich, declined to comment.

To contact the reporter on this story: Kelly Bit in New York at kbit@bloomberg.net.

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