Reinsurer to take $1bn charge in Q4

Swiss Re has terminated the convertible perpetual capital instrument it issued to Berkshire Hathaway last year to boost its flagging capital base. Swiss Re did not have to repay the convertible until March 2011.

Swiss Re received CHF3bn ($3.1bn) from Berkshire, controlled by billionaire investor Warren Buffett, in return for the instrument.

Swiss Re suffered heavy losses in 2008 as a result of the financial crisis. Unrealised investment losses in its investment portfolio, which included credit default swaps, wiped CHF11bn from the company’s shareholders’ equity at the end of 2008, prompting a downgrade to A+ from AA- by rating agency Standard & Poor’s (S&P).

The company has since rebuilt its capital position and is looking to regain a double-A-range rating from S&P.

“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," said Swiss Re CEO Stefan Lippe in a statement.

Swiss Re will expense the interest charges and the 20% premium related to the convertible in the fourth quarter, adjusted for foreign exchange. The charge to earnings is expected to be approximately USD 1 billion pre-tax. After making the termination payment, Swiss Re will still hold significant excess capital above the AA level.