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NewsWarren Buffett's FirmGives New Life toSwiss ReAiling Swiss Re has been given a timely lift by Warren The firm's initial plan to buy back up to SFr6 billion ($5.51Buffett's Berkshire Hathaway group, which has bought a billion) of shares has now risen to SFr7.75 billion.three percent stake in the world's largest reinsurer.Berkshire will assume 20 percent of Swiss Re's propertyand casualty exposure over the next five years as part ofFuture intentionsThe so-called "quota share" agreement that allowsthe deal. Shares have continued to rise on the back of the Berkshire to take over a fifth of Swiss Re's property andrecent announcement.casualty risks comes with the upside of claiming 20percent of premiums paid. The mechanics of the deal areThe Zurich-based reinsurer announced in November thatnot unusual in the industry, but the scale is larger thanit would have to write down SFr1.2 billion ($1.1 billion)average, according to Wiemer.related to United States subprime mortgage losses. Thisfollowed a SFr1.21 billion payout bill for natural disasters The deal gives Berkshire greater access to the Europeanin 2007 – higher than the previous year.market and a means of channelling its funds away fromthe shaky dollar. Precise details have not been revealed"This is a remarkable statement of trust and confidence bybut the three per cent stake is estimated to be worthprobably the most knowledgeable insurance investor inthe world," Swiss Re chief executive Jacques Agrainaround $800 million (SFr870 million).recently told newspersons. "We are extremely proud to It has also led to speculation about the future intentions ofhave [Berkshire] among our shareholders."Buffett. Most analysts do not expect Berkshire to launch aBank Vontobel analyst Heinrich Wiemer agreed that full takeover, but some believe it may increase its stake atBuffett's personal seal of approval carried a lot of weight, a later date.despite only taking a small stake. The iconic investor, "I wonder if this is purely a financial investment or just aknown as the "sage of Omaha", has built a vast fortune first step towards something more," insurance expert Peterthrough shrewd acquisitions in the insurance sector. Maas from St Gallen University said."Buffett is the world's most respected insurance insider "Investors needed a new storyline because although theand long-term anti-cyclical investor. You probably couldgeneral business model worked, earning money in thenot find a more authoritative voice in insurance," he said.traditional reinsurance markets, the newest financialThe Berkshire Hathaway deal both softens Swiss Re's services division had problems. So where does the triggerexposure to property and casualty claims and frees up for new development come from? It could come frommore money for its continuing share buyback scheme. outside.”42INDO-SWISS BUSINESS + JAN-FEB 2008