By Haig Simonian in Zurich
Published: January 18 2010 13:17 | Last updated: January 18 2010 13:17
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Swiss Re said on Monday that it would release at least SFr300m ($292m) of capital by transferring a block of US life reinsurance business to Berkshire Hathaway, the US financial group controlled by Warren Buffett.
The Swiss reinsurer, in which Mr Buffett has a stake, did not reveal any specific use for the capital released, but said it believed it could invest the money more profitably elsewhere.
George Quinn, chief financial officer, said in a conference call that the transaction was not expected to have significant impact on profitability. Analysts broadly welcomed the release of capital and potential balance sheet strengthening.
The Swiss group last year lost its place as the world’s biggest reinsurer and is still recovering from a testing period during which it posted heavy losses because of writedowns on investments and the severe impact of two disastrous structured credit default swaps for an unnamed client.
The group, which last year switched chief executives, has since then adopted a much more cautious investment strategy but may have lost out on growth opportunities, analysts said.
Mr Quinn disputed that the business being transferred was entirely unprofitable, but conceded that profitability had been “marginal”. He said the group had identified the block, all written before 2004, as unsatisfactory in subsequent profitability reviews, and for the past two to three years been considering options for transfer or divestment.
“While the historical performance of the underlying block has been mainly positive, the business does not meet Swiss Re’s return hurdles,” the group said in slides to investors.
“It’s a small piece of portfolio management, but it’s not life-changing for the firm”, said Mr Quinn.
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