Swiss Re gears up to repay loan to Warren Buffett

City A.M. Reporter
SWISS Re, the world’s second-biggest reinsurer, boosted its capital by around $3bn (£2bn), giving it confidence it can repay a costly convertible loan from billionaire Warren Buffett and regain a key credit rating.

A much improved investment performance also enabled the company to beat profit expectations for the first quarter, despite large natural catastrophe claims eating into earnings.

Swiss Re, which had to take a costly convertible loan from Buffett-owned rival Berkshire Hathaway last year after bets on risky assets backfired, said its excess capital rose to more than $12bn, improving its chances of recapturing its coveted AA credit rating and repaying Buffett.

“This level of excess capital gives us increased confidence that we can regain the AA rating,” Swiss Re chief financial officer George Quinn said.

Claims on catastrophes like Chile’s magnitude 8.8 earthquake, a wind storm in Europe and floods in Australia ran to $720m in the first quarter at Swiss Re, against the $1bn Swiss Re would see as normal for the full year.

If natural catastrophe losses were as usual for the rest of 2010, they would be bigger than Swiss Re previously predicted for the full year, leaving a dent in earnings, Quinn said.

Swiss Re estimated its loss from the explosion of the Deepwater Horizon oil rig in the US Gulf of Mexico in April, which caused one of the worst oil spills in US history, at $200m, with total insurance industry losses between $1.5bn and $3.5bn.