Swiss Re Gets $1.27bn in Berkshire Life Deal

Insurer Swiss Re is to transfer the liabilities of a lossmaking U.S. life reinsurance contract to investor Warren Buffett for 1.3 billion Swiss francs ($1.27 billion) to free up cash and bolster its finances.

The deal with the U.S. investor’s Berkshire Hathaway [BRKA  97500.00  —  UNCH  (0)   ] makes Berkshire Hathaway Life Insurance Company of Nebraska liable for up to $1.5 billion in reinsurance claims. Berkshire Hathaway will also be the recipient of premiums from the block.

For Swiss Re, the deal will also free up about 300 million Swiss francs in capital, allowing it to be invested more profitably elsewhere, Swiss Re, the world’s second-biggest reinsurer, said on Monday.

Shares in the company were up 0.15 percent at 50.25 Swiss francs.

“The transaction is marginally positive for Swiss Re. This block of business was slightly loss-making in 2009,” said Helvea analyst Tim Dawson.

“It does give Swiss Re more capital flexibility and strengthen the balance sheet.”

The claims Berkshire Hathaway is taking responsibility for stem from a block of U.S. life insurance policies written before 2004.

Swiss Re said the business no longer met its investment thresholds, and that passing it to Berkshire Hathaway would have boosted operating profit at its life unit by 40 million Swiss francs in the first nine months of 2009.

Getting rid of the contract will also reduce its financial exposure to lethal pandemics such as the swine flu outbreak by about 10 percent, the company added.

The deal is effective as of Oct. 1, 2009, and will be reported by Swiss Re in the first quarter 2010.

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