Swiss Re to repay costly Buffett loan early

ZURICH (Reuters) - Swiss Re said it would repay a costly loan from U.S. billionaire Warren Buffett early, as it had replenished its capital to comfortable levels since taking a hit during the global credit crisis.

The world’s second-biggest reinsurer almost doubled third-quarter profit, comfortably beating analysts’ forecasts.

Swiss Re said on Thursday it would not be penalized for bringing forward the repayment date on the $3.1 billion convertible loan from Buffett-owned rival Berskshire Hathaway

from early 2011. But it would have to pay full interest due including an adjustment for foreign exchange, leading to a $1 billion charge in the fourth quarter.

Shares in Swiss Re were up 6.3 percent to 50.45 francs at 0948 GMT, clawing back ground lost this year and outperforming a 1.5 percent rise in the Stoxx 600 European insurance index and a 1.8 gain in the stock of bigger rival Munich Re.

“The good news in today’s announcement is the early redemption of Berkshire, which in our view improves financial flexibility and will reposition Swiss Re as a leading independent reinsurance company,” said Vontobel analyst Stefan Schuermann, upgrading the stock to ‘buy’ from ‘hold’ and hiking his price target to 62 francs from 52 francs.

Swiss Re took out the loan, which carries a hefty 12 percent coupon, with Buffett in February 2009 after taking hits from risky assets during the credit crisis, putting its capital base in jeopardy.

The company also has to pay Buffett a 20 percent repayment premium, or 600 million francs.

Swiss Re Chief Financial Officer George Quinn said he could not comment on whether Buffett was interested in adding to his 3 percent in the company.

Buffett raised his stake in Munich Re to above 10 percent and planned to further expand the holding, Swiss Re’s rival said in October.


Third-quarter net profit almost doubled to $618 million as property and casualty reinsurance profit margins improved markedly on below average natural catastrophe losses. Swiss Re’s policy of only writing the most profitable business in a market characterized by low prices also helped.

Analysts had forecast net profit of $437 million, on average, in a Reuters poll.

Improved investment income also boosted asset management earnings as Swiss Re removed expensive hedges, though the group took a $195 million hit on forex movements.

Swiss Re was sticking to its target of 12 percent return on equity over the reinsurance cycle, Quinn said.

“For us we have the benefit of the clarity and (repaying Buffett) removes any residual uncertainty for shareholders and achieves a very important goal,” he said.

Swiss Re said following the buyback of the Buffett investment it still held significant excess capital above the level it needed to regain the key ‘AA’ credit rating it lost in the credit crisis.

Standard & Poor’s, which rates the company’s financial strength ‘A+’ with a positive outlook, said in October that Swiss Re’s capital was above that needed for the top ‘AAA’ rating and was expected to remain so even after the company repaid Buffett.

Swiss Re was the first major reinsurer to report third-quarter numbers, ahead of French company Scor on November 5, and German groups Munich Re and Hannover Re on November 9 and November 11 respectively.

(Reporting by Jason Rhodes; Editing by Dan Lalor and Erica Billingham)

$1 = 0.9775 Swiss franc