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Hedge funds use reinsurance as 'beard' for tax avoidance, Buffett says


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Hedge funds use reinsurance as 'beard' for tax avoidance, Buffett says

BerkshireHathaway Inc. Chairman, President and CEO Warren Buffett criticizedthe influx of hedge fund-backed reinsurers into the industry, calling themfronts used by money managers trying to dodge taxes.

The reinsurance industry has seen a rush of new offshoreentrants over the past few years, many of which are backed by investment firmsseeking higher yields amid the current low interest rate environment. While thevehicles have offered more capacity to the industry, Buffett dismissed them asmotivated primarily by the tax benefits available to reinsurers domiciled inplaces such as Bermuda and the Cayman Islands.

"Reinsurance is the easiest beard from which toactually engage in money management from a friendly tax jurisdiction,"Buffett said during Berkshire's annual shareholders meeting, alluding to theability for hedgefunds to write reinsurance coverage and then funnel the resulting float backinto their investment portfolios at a lower tax rate.

The alternative vehicles have pressured more traditionalreinsurers like the one run by Berkshire Hathaway by competing for customersand driving down prices. That increasingly crowded market Berkshire to exit its stakesin global reinsurers MunichRe and Swiss ReLtd., Buffett said.