The ‘Wizard of Omaha’ Warren Buffett has bought a major stake in Insurance Australia Group, as part of a long-term strategy to invest billions in the Australian share market.

Buffett’s investment management firm Berkshire Hathaway will take a $500 million, 3.7 per cent stake in IAG.

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As part of the deal, Berkshire Hathaway will receive 20 per cent of IAG’s premium revenue, and will commit to pay out 20 per cent of claims. This agreement will initially continue for 10 years.

This, said the insurance company, will reduce IAG’s earnings volatility and capital requirements.

Mr Buffett, who is famous for his conservative, long-term, bottom-up investment strategy, said of the deal:

“We have worked with IAG for more than 15 years and over that time we’ve developed a good understanding and respect for their people, what they offer and the way they do business. For us, they are a natural partner with a strong management team and brand presence.

“Our strategic partnership with IAG will help fast-track our entry into this region, and provides us with opportunities to leverage IAG’s extensive capabilities while also making our expertise available to IAG.”

Mr Buffett told media on Tuesday that he expects to hold “four or five” Australian stocks within the next two or three years – including at least one bank.

In the long-term this would appear to be good news for the Australian economy. However, the timing suggests Mr Buffett, who has a fine nose for such things, may be able to sniff some good deals on the horizon.

The IAG share price jumped by almost 50 cents following the announcement on Tuesday.