Warren Buffett's Berkshire Hathaway Inc has bought a 3.7 percent stake in Insurance Australia Group for A$500 million ($388 million) as part of a partnership that IAG said would reduce its capital requirements and support its return on equity targets.

Berkshire will buy 89.77 million shares at A$5.57 each, and take a 20 percent quota of IAG's consolidated insurance business over 10 years, IAG said.

The deal with the world's best known value investor would support IAG's goal of delivering 15 percent return-on-equity through the economic cycle, it said.