Warren Buffet’s Berkshire Hathaway has acquired 3% stake in Swiss Re, the world’s largest reinsurer.
Swiss Re has also entered into a reinsurance contract with Berkshire Hathaway. The capital released as a result of this reinsurance contract will be used to buy back shares.
Swiss Re has also entered into a proportional reinsurance contract with Berkshire Hathaway. Under this quota share arrangement, Berkshire Hathaway will assume 20% share of all Swiss Re’s property and casualty business for the next five years.
The contract is effective as of 1 January 2008. This should lead to a reduction in the capital deployed in Swiss Re’s P&C business.
As a result, Swiss Re intends, in addition to its previously announced buy-back programme, to acquire its own shares in the market for general treasury purposes up to a total value of CHF 1.75 billion. This buy-back is expected to be completed over the next 2 years as the capital relief resulting from the quota share arrangement is achieved.
As a result, Swiss Re now targets a total buy-back, including shares already re-purchased, of up to CHF 7.75 billion. Since 1 March 2007, Swiss Re has re-purchased 16 650 479 shares from General Electric Company and 11 083 000 shares under its existing buy-back programme.
“This reinsurance arrangement is further evidence of our commitment to actively manage the P&C cycle in the best interest of our shareholders. The additional capital efficiency as well as the downside protection will permit Swiss Re to retain flexibility in a softening property and casualty market. The arrangement also underlines the strength of our underwriting capabilities. It will allow us to increase capacity rapidly should pricing conditions improve. Furthermore, it will advance our efforts to manage earnings volatility a key strategic priority,” says Jacques Aigrain, CEO, Swiss Re.