Buffett: A big reinsurer will sink

The billionaire US investor Warren Buffett said a large unnamed reinsurer has "all but ceased paying claims", which he said would lead to billions of dollars of write-offs by insurers who bought policies from the company.

Mr Buffett, whose Berkshire Hathaway is the world's third-largest reinsurer through its General Re unit, did not name the reinsurer. He made the comments in his annual letter to shareholders, which was published on Saturday.

"One of the world's largest reinsurers – a company regularly recommended to primary insurers by leading brokers – has all but ceased paying claims, including those both valid and due," Mr Buffett wrote. "This company owes many billions of dollars to hundreds of primary insurers who now face massive write-offs." Several reinsurers – companies that take on a share of insurers' risks, for a premium, to help them dilute the effect of large claims – have stopped underwriting in the past year as massive claims, such as those from the World Trade Centre attacks, hit them hard after almost a decade of plunging premium rates.

Analysts speculated that Gerling Global Re, a unit of the troubled German insurer Gerling, was the company referred to. "A simple process of elimination points to no other likely reinsurer," Chris Winans, an analyst at Williams Capital Group, said. However, a Gerling spokesman said: "We are paying all claims that fall due."

Gerling Global Re stopped underwriting new business six months ago. Gerling moved to sell the unit, but German financial regulators blocked the sale last month, partly over fears that claims would not be paid.

Michael Hallett, at Fox-Pitt Kelton, said: "The future of Gerling Global Re as a viable claims paying organisation is increasingly uncertain." Market sources in Germany said Gerling Global Re had not stopped paying claims, although there might be problems with payouts ahead.