Swiss Re nearly doubles profits and repays Buffett

Swiss Re, one of the world’s biggest insurers reported yesterday a near doubling of its third-quarter net profit, allowing it to repay crisis funding from US billionaire Warren Buffett.

Swiss Re said in a statement that third-quarter net profit reached $618 million (€440 million), a 97-per cent increase over the same period last year and well above analysts’ expectations.

The company, a pillar of the global reinsurance industry, has gradually been rebuilding its capital base in a business turnaround since it shed the risky investment policy that left it trembling about two years ago.

In 2008, Swiss Re posted its biggest-ever loss of 864 million Swiss francs forcing the group to turn to Wall Street sage Warren Buffett’s Berkshire Hathaway for fresh funds in the form of a 20-per cent stake in the company.

“Today we are pleased to report that our improved capital position allowed us to reach an agreement to repay Berkshire Hathaway, with no additional charge for bringing forward the repayment date.” Swiss Re chief executive Stefan Lippe said in a statement.

Mr Buffett’s investment vehicle brought in about three billion francs in February 2009, on top of its existing stake of three per cent at the time, as Swiss Re sought to avoid a downgrade in its credit rating.

Under the terms of the convertible capital instrument, it could have been turned into Swiss Re shares after three years at a price of 25 francs a share.

The reinsurer’s share price reached 50.65 francs in early trading yesterday, a rise of 6.7 per cent.

Swiss Re said interest charges and a 20 per cent premium on the Berkshire Hathaway capital of about $1 billion would be booked onto its accounts in the final quarter of 2010.

The group’s core property and casualty business grew in the third quarter with operating income of $1.1 billion, despite $160 million in costs from September’s earthquake in New Zealand, the biggest to hit the country in almost 80 years.

Swiss Re also described the natural catastrophe season – mainly Caribbean hurricanes and Pacific basin typhoons – as “benign” in terms of insured losses so far this year.

The group said it would still hold “significant excess capital” after Berkshire Hathaway’s withdrawal.

“We have delivered on our promises and successfully turned around the company’s performance,” said Mr Lippe.

Analysts polled by business news agency AWP had forecast an average net profit of $457 million in the third quarter.

“At first sight a very convincing set of figures from the reinsurer,” said analysts at Bank Wegelin yesterday, while questioning their sustainability with volatile financial markets.

Vontobel bank’s research team welcomed the payback despite some disappointment at life and health insurance results, saying it should allow Swiss Re to regain its status as a frontline “independent reinsurer.”