Swiss Re vows to buy back Berkshire Hathaway stake

Swiss Re has pledged to buy back the £1.8bn stake in the business taken by Warren Buffett’s Berkshire Hathaway.

The investment, in the form of a convertible perpetual capital instrument, has a face value of CHF3bn and a 12% coupon attached that can be paid in cash, shares or warrants at a 5% discount.

Swiss Re can buy back the stake from the second anniversary at 120% of face value. The reinsurer’s newly appointed chief executive, Stefan Lippe, and its chief financial officer, George Quinn, confirmed that the aim was to re-purchase the instrument after two years.

Berkshire Hathaway has the option of converting the investment into common shares any time after holding them for three years.

Analysts have expressed doubts that Swiss Re will be able to buy back the stake, however.

“It is an ambitious target given their capital constraints and with the ratings downgrade they have had to increase capital,” said Mark Nicholson, equity analyst of S&P equity research.

Last week Standard & Poor’s lowered Swiss Re’s financial strength rating by one notch to A+, stable outlook. Swiss Re said the estimated impact of this downgrade from AA- would be an additional funding requirement of about $1.5bn (£1.04bn).

Other ratings agencies have also downgraded Swiss Re. Moody’s Investor Service has downgraded it from AA3 to A1. Moody’s said the move was prompted by the group’s weakening profitability, capital adequacy and financial flexibility metrics.

AM Best said it was reviewing its A+ (Superior) rating of the reinsurer.

Swiss Re is moving to boost its performance and de-risk its business and investment portfolio. But analysts say it is not doing enough. They have called for a more proactive approach from Lippe at the next annual general meeting, which will be held next month.

“We do not take great comfort from the [chief financial officer’s] comment that the group would only raise equity if there were a ‘significant’ shift in market conditions,” said investment bank Collins Stewart in a statement. “We think the de-risking of the balance sheet should be accelerated beyond current plans.”