Jan. 23 (Bloomberg) -- Swiss Reinsurance Co., the world's biggest reinsurer, rose in Zurich trading after billionaire investor Warren Buffett's Berkshire Hathaway Inc. bought a 3 percent stake.

Swiss Re gained as much as 12 percent, its biggest advance since March 2003, before closing 2.75 francs higher, or 3.7 percent, at 76.35 francs. Before today, Swiss Re lost about a quarter of its value since reporting 1.2 billion francs ($1.1 billion) in losses on derivatives in November.

``I was stunned, Berkshire Hathaway isn't known to give anything away and it implies that reinsurance earnings are undervalued by the market,'' said Michael Huttner, an analyst at JPMorgan in London with an ``overweight'' rating on the stock.

Buffett is investing outside the U.S. to spur growth at his investment company as the dollar weakens. Swiss Re agreed to cede 20 percent of its property and casualty business to Berkshire over the next five years, freeing up capital to repurchase an additional 1.75 billion francs of stock, it said.

Buffett's investment means ``confidence is being expressed in the fundamentals of this company, which are quite opaque at present,'' Brian Shea, a Merrill Lynch research analyst in London, wrote in a note to clients. ``The ceding commission could be unfavorable to Swiss Re. But this won't be the market's immediate focus today.''

With Swiss Re's gain, that cut the year's losses to 5.1 percent and gave the company a value of about 28.3 billion francs, making Buffett's stake worth about 848 million francs.

Insurers Rise

Insurers initially rose across Europe, with the Bloomberg Europe 500 Insurance Index adding as much as 3.2 percent before closing 2.2 percent lower. Prudential Plc, the largest U.K. insurer, rose 1.2 percent following a report that Ping An Insurance (Group) Co. may spend 100 billion yuan ($13.8 billion) to buy a stake. Zurich Financial, Switzerland's largest insurer, rose after Chief Executive Officer James J. Schiro confirmed a profit goal.

Berkshire has been increasing its insurance-related holdings during the past month. The company received a license to start a bond insurance company in New York and agreed to buy a reinsurance unit from ING Groep NV, the biggest Dutch financial-services company, for about $440 million.

Swiss Re in 2006 leapfrogged Munich Re as largest reinsurer with its $7.4 billion purchase of General Electric Co.'s Insurance Solutions, which boosted premiums to 29.5 billion francs. Berkshire Hathaway is the third-largest reinsurer.

Swiss Re fell the most since 2003 on Nov. 19 when Roger Ferguson, the former U.S. Federal Reserve governor who runs Swiss Re's financial-services division, reported writedowns on credit default swaps sold to protect a client against losses on mortgage- backed securities.

`Simple' Businesses

Buffett built Omaha, Nebraska-based Berkshire during the past four decades into a $210 billion company, using premiums from insurance units such as Geico Corp. to fund investments in businesses ranging from ice cream and bricks to corporate jet leasing. Berkshire has more than $40 billion of cash available to make purchases.

The 77-year-old Buffett wrote in Berkshire's latest annual report that his investment criteria include companies with ``good returns on equity,'' little or no debt, ``simple'' businesses that he can understand, and consistent earnings.

After making bets against the dollar starting in 2002, Buffett has more recently purchased assets outside the U.S. to hedge against the currency. He paid $4 billion in 2006 for 80 percent of closely held Israel-based toolmaker Iscar Metalworking Cos., his first non-U.S. acquisition.

Buyback

Swiss Re earns more than half of its premium income from helping shoulder property-and-casualty risks for insurers such as Allianz SE. It has a target of earnings-per-share growth of 10 percent and a return on equity of 13 percent over the course of the reinsurance pricing ``cycle.''

Shares repurchased under the new buyback will be used ``for general treasury purposes,'' Swiss Re said today. The program is in addition to a 6 billion-franc plan announced in March.

``The additional capital efficiency as well as the downside protection will permit Swiss Re to retain flexibility in a softening property and casualty market,'' Chief Executive Officer Jacques Aigrain said in the statement. The agreement ``will allow us to increase capacity rapidly should pricing conditions improve.''

To contact the reporter on this story: Warren Giles in Geneva at wgiles@bloomberg.net

Last Updated: January 23, 2008 12:04 EST