Swiss Re will ‘capture’ some of the risk in exchange for payment
Swiss Re, one of the world's biggest reinsurance groups, on Thursday said it had settled a dispute with billionaire Warren Buffett's Berkshire Hathaway over a 2010 insurance policies deal, and would accept a settlement of $610m from the US company.
Swiss Re said in a statement it had agreed to take back some of the risks covered by a reinsurance contract with Berkshire Hathaway. The total protection provided by the US firm to Swiss Re will be reduced from $1.5bn to $1.05bn, it added.
In 2009, Berkshire Hathaway had provided funds to help the Swiss reinsurer bounce back after it announced a 2008 loss of one billion Swiss francs ($1.05bn).
In January 2010, the two groups agreed to a retrocession transaction --where one reinsurer insures another -- under which Berkshire Hathaway took on a portfolio of Swiss Re's annually renewable life insurance policies that dated from before 2004, limiting Swiss Re's exposure to claims.
The second part of the transaction involved a stop loss agreement provided by Swiss Re that limited Berkshire Hathaway's exposure from the overall deal to $1.5bn.
Berkshire Hathaway subsequently served notice of damages and as required by the contract, the two sides negotiated the deal which has just been reached.
Swiss Re will thus "recapture" some of the risk, in exchange for payment by Berkshire Hathaway of $610m, an operation which will have the effect of providing the Swiss group with an initial gain of around $100m in the first quarter of 2013.