Swiss Re strategy doubted as teams up with Buffett

By Douwe Miedema

ZURICH (Reuters) - Swiss Re (RUKN.VX: Quote, Profile, Research, Stock Buzz) clinched a deal with U.S. billionaire Warren Buffett, giving its beaten-down shares a fillip, but raising concerns the reinsurer was giving a rival too much access to its core business.

Swiss Re said Buffett's investment vehicle, Berkshire Hathaway (BRKa.N: Quote, Profile, Research, Stock Buzz) would take 20 percent of all its property and casualty reinsurance business, freeing up more capital for it to return to shareholders. Financial details were not disclosed.

Berkshire also bought a 3 percent stake in Swiss Re, the world's largest reinsurer, whose shares have been battered after it became the first major insurance victim of the credit crisis.

The news on Wednesday that one of the world's most respected investors was teaming up with Swiss Re gave the company a much-needed confidence boost. Its shares rose 12 percent in early trading, pulling along rival reinsurers.

"Buffett obviously thinks all bad news is in the price and they don't come much smarter, especially in the insurance space. Big positive sector read-across today," one trader said.

Swiss Re stock has been hammered since its 1.2 billion Swiss franc ($1.10 billion) subprime-related writedown in November, as markets feared more bad news.

The company's reassurances have done little to convince investors the stock is worth buying, despite some analysts saying the company is now looking like a bargain.

Swiss Re shares pared gains by 8:43 a.m. ET on Wednesday to change hands at 75.20 francs, up 2.2 percent.