FRANKFURT (Reuters) – U.S. investor Warren Buffett has built a $1 billion stake in Munich Re, adding to his array of insurance holdings and boosting shares in the world’s biggest reinsurer.
Munich Re said on Tuesday Buffett’s shareholding rose just above the mandatory reporting threshold on January 18 and amounted to 3.045 percent of the voting rights on that date.
Analysts said Buffett probably saw Munich Re simply as a good buy in an undervalued sector. The stock has gained 1.7 percent over the last 18 months, compared with a 21 percent decline in the DJ Stoxx European insurance index .
“It appears to be a portfolio investment for Buffett rather than a strategic one,” JP Morgan analyst Michael Huttner said.
JP Morgan in a research note last week said the insurance sector looked cheap at about 1.0 times book value, compared with a historical valuation of 1.4 times, adding tighter insurer solvency rules due to come into effect in the next three years were a major worry for investors.
Munich Re stands to be a big winner from the new rules because of its ability to generate excess capital and grow its business, particularly with mutual insurers, JP Morgan said.
Munich Re has resumed share buybacks and is expected to deliver a 2009 net profit of 2.36 billion euros ($3.3 billion) according to Thomson Reuters StarMine.
Industry observers said Buffett’s move was a vote of confidence in reinsurers, which make their money by selling cover for big risks such as hurricanes and earthquakes to insurance companies.
PLAYING THE FIELD
The billionaire investor is already a major player in the world’s reinsurance market with his Berkshire Hathaway Inc unit, the world’s third-biggest reinsurer.
He also pumped 3 billion Swiss francs ($2.9 billion) into the world’s No. 2 reinsurer, Swiss Re, at the height of the financial crisis after the Swiss group wrote down billions on illiquid assets.
Swiss Re last week said it had agreed to transfer a U.S. life reinsurance contract to Buffett for 1.3 billion Swiss francs, allowing it to reinvest capital more profitably elsewhere.
Swiss Re shares have fallen 30 percent over the last 18 months.
Munich Re shares turned positive on news of the Buffett purchase, rising by as much as 2 percent before paring gains to close up 1.2 percent at 109.80 euros. The DJ Stoxx index of European insurance shares rose 0.4 percent.
The stake was worth around 740 million euros ($1 billion), according to a Reuters calculation.
“We rejoice at every investor as evidence of our sustainable strategy,” a Munich Re spokeswoman said.
Rumors that Buffett was buying stock had boosted Munich Re shares on Friday.
Berkshire is the largest U.S.-based company by market value not included in the S&P 500 because the highly priced shares trade on thin volume.
Data from Thomson Reuters StarMine, which weights analysts’ forecasts according to their track record, shows Munich Re trading at 8.6 times 12-month forward earnings, a slight premium to Swiss Re’s multiple of 8.1
(Editing by Rupert Winchester and David Holmes)
($1=1.041 Swiss Franc)
($1=.7097 Euro)
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