Swiss Re Ltd., the world’s second-biggest reinsurer, expects to post a first-quarter gain of about $100 million after settling a dispute over a so-called retrocession deal with Warren Buffett’s Berkshire Hathaway Inc.
Swiss Re will take back some of the risks covered by the closed block of U.S. life reinsurance and in return will receive a payment of $610 million from Berkshire Hathaway, the Zurich-based company said today in an e-mailed statement.
Berkshire Hathaway will reduce the reinsurance protection it provides to Swiss Re for the retrocession deal to $1.05 billion from the $1.5 billion the Omaha, Nebraska-based company agreed to take on in January 2010. Berkshire Hathaway had alleged damages of between $500 million and $1 billion after the contract resulted in a 2011 pretax underwriting loss of $642 million as assumptions about mortality rates were exceeded.
“The settlement of the dispute with Berkshire Hathaway and the advantageous outcome for Swiss Re” are positive, said Georg Marti, a Zurich-based analyst with Zuercher Kantonalbank who has a market weight rating on the stock.
Swiss Re rose as much as 0.7 percent in Zurich trading and was up 0.5 percent to 77.60 Swiss francs at 9:26 a.m., valuing the company at 28.8 billion francs ($30.2 billion). The stock has gained 18 percent this year.
“Prior to recapture, the treaties have been producing losses,” Swiss Re said in the statement. “There is no assurance that the payments received from Berkshire Hathaway will be sufficient to cover future losses.”
The retrocession contract was one of a number of deals between Swiss Re and Berkshire Hathaway over the past five years. Buffett’s firm injected 3 billion francs of capital into Swiss Re in February 2009 after record losses at the reinsurer. Swiss Re repaid the funds in November 2010.
Berkshire Hathaway also bought about 3 percent of Swiss Re in 2008, when it signed a quota share agreement that gave the U.S. firm 20 percent of the reinsurer’s new or renewed property and casualty business. That contract ended in December.