Swiss Re Repaying Berkshire As Capital Position Improves

With its third-quarter net income result doubling over last year, and its capital position improving, Swiss Re said it has reached agreement to repay Berkshire Hathaway, which injected $2.6 billion into the Zurich-based reinsurer last year.

Swiss Re reported third-quarter net income of $618 million, compared to $314 million in the prior-year period.

Shareholders' equity increased by $2.4 billion to $29.9 billion in the third quarter of 2010, resulting in a return on equity of 9.5 percent for the quarter.

The reinsurer also announced that the convertible perpetual capital instrument issued to Berkshire Hathaway has been terminated effective Nov. 3, 2010.

In an effort to preserve its “double-A” financial strength ratings, Swiss Re secured three billion Swiss francs, $2.6 billion at 2009 current exchange rates, from billionaire investor Warren Buffett in February 2009, after sustaining an estimated 2008 loss of one billion Swiss francs, translating into $860 million at the time.

Currently, Swiss Re's ratings are “A-plus from Standard & Poor's, “A1″ from Moody's Investors Service and “A” from A.M. Best.

In a statement, Stefan Lippe, Swiss Re's chief executive officer, said, “Today we are pleased to report that our improved capital position allowed us to reach an agreement to repay Berkshire Hathaway, with no additional charge for bringing forward the repayment date.”

“At the beginning of 2009, we set out a series of firm commitments aimed at restoring trust in Swiss Re,” Mr. Lippe said. “We have delivered on our promises and successfully turned around the company's performance. We are now firmly focused on the future, implementing our strategy and leveraging our core capabilities.”

Swiss Re said it will expense the interest charges and a 20 percent premium in the fourth quarter, adjusted for foreign exchange.

The charge to earnings is expected to be approximately $1 billion before taxes.

After making the termination payment, Swiss Re said it believes it will still hold significant excess capital above the “double-A” level.

Explaining the net income jump, Swiss Re said third-quarter operating income for the property and casualty segment jumped over 20 percent to $1.1 billion, compared to $0.9 billion in the 2009 third quarter, while life and health results deteriorated.

Operating income of $1.2 billion for the asset management segment, compared to $697 million in third-quarter 2009, also helped drive up overall results.

The 2010 third-quarter p&c result benefited from below-average natural catastrophe activity and disciplined underwriting, Swiss Re said, noting that the p&c combined ratio improved to 76.4 from 84.5 in last year's third quarter.

Through the first nine months of 2010 the combined ratio was 95.6.

Looking ahead, and noting the low interest rate environment, Swiss Re said it will continue to focus on writing profitable business while opening up new sources of income through a capacity for innovation, and it will remain committed to active cycle management–deploying capital to those lines of business where it expects to achieve an appropriate return.