Berkshire Moves Into Spain With CaixaBank Reinsurance Deal

Warren E. Buffett has generally shied away from dipping his toe into southern Europe. But Mr. Buffett is nothing if not full of surprises.

His investment firm, Berkshire Hathaway, agreed on Friday to pay $780.8 million to claim the future cash flows of a life insurance portfolio held by CaixaBank, a major Spanish lender.

CaixaBank, which will continue to service the portfolio, will claim a pretax profit of about $680 million.

With the reinsurance deal, Mr. Buffett and his sizable insurance team are betting that at least one Spanish firm is in good financial shape, even as its home country remains on shakier economic ground.

He has repeatedly offered a dour assessment of Europe since the onset of its sovereign debt crisis, calling it a serious problem with few obvious solutions.

“I don't know how it plays out in Europe,” Mr. Buffett said at Berkshire's annual investor conference earlier this year. Referring to the European Central Bank, he added, “We have seen the E.C.B. here recently give $1 trillion to banks which are loaded with sovereign debt, which really is questionable in many cases.”

And he said during a visit to Japan two weeks ago that had no idea how the crisis would be resolved.

That said, Mr. Buffett said during the same meeting that he still saw plenty of opportunities to invest in Europe - outside of debt. “There are stocks I like and wonderful businesses,” he said, according to Reuters.

And the arm of Berkshire that is behind the CaixaBank deal, its big reinsurance division, has repeatedly demonstrated a greater appetite for risk than the rest of the company.

Many firms, including the American International Group and Lloyds, have struck agreements with Berkshire to help clean up their balance sheets. CaixaBank, for example, will be able to use the proceeds from the deal to meet new banking rules that require it to hold more capital.

Mr. Buffett and his top insurance lieutenant, Ajit Jain, agree to take on such potentially risky transactions because they provide additional assets to bulk up Berkshire's “float,” or insurance premiums that haven't been paid out yet. While the company may eventually need to pay out on insurance claims, it is betting that it will have made far more money by investing them elsewhere first.

Mark Scott contributed reporting.