The deal, announced on Tuesday, will see the two companies form a 10-year, 20 per cent quota arrangement across IAG's consolidated insurance business. Berkshire Hathaway will receive 20 per cent of IAG's gross written premiums and pay 20 per cent of claims.
IAG chief executive Mike Wilkins said the deal would help "deliver improved consistency of earnings" and provide the company with "significant capital flexibility".
"We look forward to the benefits that will flow from the combination of IAG's underwriting skills, supply chain management expertise and deep customer knowledge, coupled with Berkshire Hathaway's speciality insurance expertise," Mr Wilkins said in a statement to the ASX.
The two companies have had a reinsurance arrangement since 2000.
Mr Buffett said in a statement that the partnership with IAG would help fast-track Berkshire Hathaway's entry into the Asia-Pacific region.
"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.
IAG expects the quota arrangement will cut its capital requirements down by $700 million over the next five years.
IAG said its insurance margin guidance for 2014-15 remained unchanged at 10.5 to 12.5 per cent as outlined in late April. It expects FY16 margins to increase to 14-16 per cent.