Swiss Re Ltd, the world’s second biggest reinsurer, said Warren Buffett’s Berkshire Hathaway Inc. is claiming as much as $1 billion in a dispute over two contracts agreed to in 2010.
On the basis of its “perception of the performance of the retroceded business,” or the policies it is insuring, and the losses incurred, Omaha, Nebraska-based Berkshire alleged damages of between $500 million and $1 billion, Swiss Re said in its third-quarter report, published Nov. 8. Swiss Re spokesman Rolf Tanner, speaking by telephone today, declined to comment beyond what was in the report.
Swiss Re and Berkshire Hathaway closed two years ago a so-called coinsurance and a stop-loss agreement on its yearly renewable term-life business before 2004. The agreements limit Berkshire Hathaway’s exposure to $1.5 billion, according to Swiss Re, which said the claims are “without merit.”
“If this case has merits, which we cannot judge right now, I think this case should be significant,” said Thomas Seidl, a London-based analyst with Sanford Bernstein. “Swiss Re will certainly consider any potential loss in sizing its special dividend.”
Berkshire said in its 2011 annual report it recorded a pretax underwriting loss of $642 million for the full year with respect to the coinsurance contract, adding that mortality rates have exceeded the assumptions it made. Buffett didn’t immediately return a message seeking comment sent to an assistant.
The dispute was reported yesterday in Insurance Insider.
Swiss Re rose 0.3 percent to 66.85 Swiss francs by 3:44 p.m. in Zurich trading. The stock has advanced 40 percent this year.
“Failure to resolve the dispute could result in commencement of arbitration proceedings,” Swiss Re said in last month’s report, adding that it’s in talks with Berkshire Hathaway. The dispute is unrelated to the quota share agreement with Berkshire that expires this year, Tanner said.
Swiss Re may consider a special dividend to address its excess capital, it said on Nov. 8. The company’s priority is delivering its financial targets, paying a “sustainable” dividend and to pursue profitable business opportunities, it said.
The company turned to Warren Buffett for a 3 billion-franc ($3.24 billion) capital injection and abandoned trading credit derivatives after reporting record writedowns and losses of $8.3 billion in 2008. It repaid the loan in 2011.
The reinsurer said last month it may give an update on the case in its annual report due to be published on March 15. The company will report full-year earnings on Feb. 21.