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Buffett's Berkshire to invest $2.6 billion in Swiss Re

February 06, 2009|Associated Press

GENEVA — Swiss Reinsurance Co. said Thursday it would get a capital injection of $2.6 billion from U.S. investor Warren Buffett's company after warning investors it expected to lose $869 million for the full year.

Swiss Re, which based its expected net loss on preliminary figures, said it would seek more funds from the capital markets.

Write-downs of about $5.2 billion for the full year offset strong underwriting performance, Swiss Re said.

Investors reacted to the news by dumping the company's stock, which fell 26% in U.S. trading.

"We are disappointed with our overall results in 2008, but our core business -- property and casualty and life and health -- is performing well," Chief Executive Jacques Aigrain said.

"We have taken steps to protect our capital strength to ensure the continued trust of our clients," he said in a statement. "Warren Buffett's agreement to invest in Swiss Re is a testament to the strength of our franchise."

Buffett's Omaha company, Berkshire Hathaway Inc., owns several major insurance companies, including Geico and reinsurance giant General Re Corp. Berkshire owns a mix of more than 60 businesses, including furniture, jewelry, candy, natural gas and corporate jet firms -- but the company's insurance group generated about 40% of its pretax profit in the most recent quarter.

Berkshire's new investment in Swiss Re will carry a 12% dividend, and after three years the investment can be converted into conventional Swiss Re shares. Berkshire already holds 3% of Swiss Re stock. The increase in the stake is subject to approval by Swiss Re's shareholders.

Swiss Re also said Berkshire agreed to reinsure Swiss Re's property and casualty reserves to cover up to 5 billion Swiss francs, or $4.25 billion, in losses.

Last fall, Berkshire also invested billions in General Electric Co. and Goldman Sachs & Co. to help those venerable companies raise capital. Berkshire invested $3 billion in preferred GE shares and $5 billion in preferred Goldman shares, and both companies agreed to pay Berkshire a 10% dividend.

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