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Swiss Re to get $2.6B from Buffett, warns of loss

ZURICH - Swiss Reinsurance Co. said Thursday it will get a capital injection of 3 billion Swiss francs ($2.6 billion) from U.S. financier Warren Buffett after warning investors it expects to lose 1 billion francs ($869 million) for the full year.

The company, which based its expected net loss on preliminary figures, said it will seek a further 2 billion francs on the capital markets.

Writedowns of approximately 6 billion francs ($5.2 billion) for the full year offset strong underwriting performance, Swiss Re said.

Investors reacted to the news by dumping the company's stock, which fell 24.40 percent to 22.80 francs ($19.62) on the Zurich exchange in morning trading.

“We are disappointed with our overall results in 2008, but our core business Property and Casualty and Life and Health is performing well," said Chief Executive Jacques Aigrain.

“We have taken steps to protect our capital strength to ensure the continued trust of our clients," he said in a statement. “Warren Buffett's agreement to invest in Swiss Re is a testament to the strength of our franchise."

Buffet has long-standing interests in the insurance business, including General Re Corp.

Through his Omaha, Nebraska-based company Berkshire Hathaway Inc., Buffett already holds a 3 percent of Swiss Re shares. The increase in stake is subject to approval by Swiss Re's shareholders.

“We are delighted to have this opportunity to increase our investment in Swiss Re. I am very impressed by Jacques Aigrain and his management team," he said in a statement.

Catherine Stagg-Macey, senior analyst at financial research firm Celent, said Swiss Re's announcement would be received with mixed feelings by investors.

“The bad news is Swiss Re's results, but the good news has to be Buffet backing one of the world's best known reinsurers," she said. This surely has to send a strong signal to the financial community that not all is rotten in Zurich."

Swiss Re said it expects its shareholders' equity to be between 19 billion francs and 20 billion francs, mainly because of losses on investments and exchange rate fluctuations in the fourth quarter.

Analysts have been predicting for weeks that the world's second largest reinsurance company would suffer a bad fourth quarter.

Demand for reinsurance has increased, the company said. Swiss Re said it expects a 2 percent increase in rates, which would lead to a 6 percent rise in volume at constant foreign exchange rates.

The company formally reports its full-year results on Feb. 19.