CGNU quits Lloyd's of London by selling business to Buffett

CGNU yesterday revealed that it has sold its Lloyd's underwriting business to a company controlled by Warren Buffett, the investment guru. The deal marks the exit of CGNU from London's historic insurance market.

CGNU yesterday revealed that it has sold its Lloyd's underwriting business to a company controlled by Warren Buffett, the investment guru. The deal marks the exit of CGNU from London's historic insurance market.

Mr Buffett already has a significant presence in Lloyd's London market business. He bought DP Mann, one of London's largest syndicates, two years ago. Under yesterday's deal, which must be approved by Lloyd's, Berkshire Hathaway, of which Mr Buffett is chairman and chief executive, will buy CGNU's Marlborough Underwriting Agency. CGNU has also paid Berkshire to reinsure against the risk that Marlborough customers may make future claims that exceed existing reserves of £1.2bn.

Mike Biggs, CGNU's executive director for general insurance, said the deal would lead to a £448m one-off charge before tax in the company's third quarter results.

Mr Biggs refused to say how much Berkshire paid for Malborough, but said the payment was only a "marginal" sum of less than £10m. Most of the £448m charge was generated by the reinsurance cost, he said.

CGNU only completed its purchase of the whole of Marlborough in August and the sale of the underwriting agency is part of a major repositioning of the group. Mr Biggs said: "We were conscious that the London market represented a long tail that exposes the business to unacceptable risk in the future. This is not consistent with our policy of focusing on small and personal line business."

The market welcomed the news, with CGNU shares climbing 36p to 958p. Roman Cizdyn, an insurance analyst at Merrill Lynch, said: "The deal improves the quality of the company because it reduces the volatility of earnings. There is quite a lot of volatility in this market - you only have to look at what happened to Lloyd's."

Lloyd's syndicates insure large scale projects and objects, historically ships. Due to high asbestos and other claims in the late 1980s, Lloyd's members were unable to make payments and many of the individual "names" were left bankrupt.