NEW YORK (Bloomberg) — Warren Buffett's Berkshire Hathaway Inc. offered $1.7 billion in cash to buy Bermuda-based reinsurer IPC Holdings Ltd. earlier this month, said two people with knowledge of the bid.

Berkshire is the "Party M" named in a regulatory filing yesterday as making a July 1 bid, according to the people, who asked not to be identified because the offer wasn't public. The bid was rejected in favour of a lower stock-and-cash offer from Validus Holdings Ltd. because Party M demanded IPC not pay a third-quarter dividend, the filing said. Party M is called "a global insurance and reinsurance company" in the document.

Buffett built Omaha, Nebraska-based Berkshire into a $140 billion company by investing premiums from insurance and reinsurance operations while waiting for claims to emerge. Berkshire's largest acquisition was the $16 billion purchase of reinsurer General Re in 1998, and Buffett's firm has invested more than $2 billion in Swiss Reinsurance Co. in the past year as the Zurich-based firm was hobbled by write-downs.

"A deal with IPC could have been a cost-effective way for Berkshire to spread its wings even more" in reinsurance, said Bill Bergman, an analyst at Morningstar Inc. in Chicago. "The environment for deals is getting better every day" amid the recession, he said. IPC's book value, a measure of assets minus liabilities, was about $1.85 billion as of March 31.

IPC auctioned itself after its shareholders last month rejected a planned merger with Max Capital Group Ltd. IPC didn't want to wait out the Atlantic hurricane season as a standalone company because of concern that claims from a major storm would reduce its value to potential suitors. The season runs until Nov. 30.

Party M offered $30 a share and would have required IPC to pay a $50 million "inducement fee", according to the joint filing outlining the deal for Validus and IPC shareholders before they vote on joining the companies.

Buffett and Charles Burgess, a spokesman for IPC, didn't immediately return messages seeking comment. Ajit Jain, who heads a Berkshire unit selling reinsurance, declined to comment as did Jonathan Doorley, a spokesman for Validus.

In addition to Validus, which had already submitted a hostile bid for the company, and Berkshire, IPC got bids from Flagstone Reinsurance Holdings Ltd. and a "large private equity firm", according to the regulatory filing. An unidentified reinsurer designated as "Party N" also bid.

Validus's winning offer, which was increased from an earlier bid, was $7.50 in cash plus 0.9727 a share of its own stock for each IPC share. That valued IPC at $29.48 a share based on the prior day's closing price. IPC announced July 9 that it accepted that proposal. Flagstone's offer, at $31.17 based on the July 8 closing price, was rejected because of "potential risk associated with Flagstone's ability to finance the cash portion of its offer, and the impact that such payment could have on the combined company's ratings and access to future financing", the filing said. Validus, Flagstone and Max Capital are all based in Bermuda.

Buffett said in May that Berkshire was cutting back on its coverage of natural disasters. Berkshire had $25.6 billion in cash at March 31, compared with $44.3 billion at the end of 2007.

"We don't have as much excess capital as we had a couple years ago, so we cut back somewhat on the insurance risk we take," Buffett said at a press conference after Berkshire's annual shareholder meeting.

Buffett has instead committed Berkshire's cash to make investments in firms including Goldman Sachs Group Inc. and General Electric Co., seizing opportunities amid the global recession as rivals stayed on the sidelines. He cited the Swiss Re deal as an example.