Buffett's Berkshire bets on Swiss Re

ZURICH -(Dow Jones)- Swiss Re (RUKN.VX) said Thursday it expects to report a net loss for the full year 2008 of approximately CHF1 billion, and said it will get a capital injection of CHF3 billion from Warren Buffett's Berkshire Hathaway Inc (BRKA).

Shareholders' equity at 31 December 2008 is estimated to be between CHF19 billion and CHF20 billion. The Group is taking significant measures to reinforce its capital strength. In addition to ongoing de-risking in its investment portfolio, the Group is raising CHF3 billion of capital from Berkshire Hathaway Inc., subject to shareholder approval, and will consider further equity raising of up to CHF2 billion, subject to market conditions.

"We are disappointed with our overall results in 2008, but our core business - Property & Casualty and Life & Health - is performing well," said Jacques Aigrain, Swiss Re's Chief Executive Officer. "We have taken steps to protect our capital strength to ensure the continued trust of our clients, and we continue to manage our business in a disciplined, conservative manner. Warren Buffett's agreement to invest in Swiss Re is a testament to the strength of our franchise."

Based on preliminary and unaudited figures, Swiss Re expects to report a net loss for the full year of approximately CHF1 billion. The Group's strong underwriting performance was offset by negative investment results primarily due to mark-tomarket losses recognised in income and impairments on its investment portfolio. These losses were partly counterbalanced by the Group's hedging programme.

Shareholders' equity is expected to be between CHF19 billion and CHF20 billion. The reduction in shareholders' equity in the fourth quarter is primarily due to unrealised losses on investments and the impact of exchange rate fluctuations.

Swiss Re announces preliminary and unaudited 2008 results Warren Buffett to invest CHF3 billion in Swiss Re via Berkshire Hathaway Inc.

Underlying operating performance is excellent due to strong client solution focus and disciplined underwriting Swiss Re's focus on underwriting quality provides a strong base from which to serve increased client demand for reinsurance solutions.

Swiss Re continued to deliver strong Property & Casualty results, with an expected full year combined ratio of 97.4% (95.6% excluding unwind of discount).

The underlying Life & Health business remains strong with a benefit ratio for the full year of approximately 85.5%.

Increased client demand for reinsurance solutions Demand for reinsurance has increased, as many clients seek protection to offset the erosion of their capital. The Group expects to report an increase in rates of around 2%, leading to a volume increase of around 6%, at constant foreign exchange rates. As the reinsurance premium cycle continues to harden, Swiss Re is well positioned to provide clients with effective solutions.

Financial Markets activities disbanded with refocus on asset management As part of an overall de-risking, financial markets activities have been disbanded, and the remaining activities have been reorganized into two distinct units. The Asset Management unit is responsible for managing the assets generated through the (re)insurance activities, and is linked with Products Underwriting and Client Markets to provide insurance-related solutions to clients. The US GAAP return on Asset Management investments for the full year is estimated to be around 5%, while the total return is a small positive.

The Legacy unit manages products no longer offered by the Group. These include the structured Credit Default Swaps (SCDS), the portfolio Credit Default Swaps, Financial Guarantee Re and the former trading businesses of Financial Markets.

These businesses produced a mark-to-market loss for the full year of approximately CHF6 billion, including mark-to-market losses of CHF2 billion for SCDS.

Capital actions reinforce Swiss Re's balance sheet Actions to strengthen its capital position, including the CHF3 billion investment from Berkshire Hathaway, give the Group the financial flexibility to capitalize on client opportunities.

The Group has surplus regulatory capital, but it estimates that at 31 December 2008 it was between CHF1.5 and CHF2.0 billion below the level required to maintain its current "AA" rating. The Board of Directors has concluded that it is in the best interest of the Group to seek to re-establish a strong level of capital. Based on current estimates, the total amount of capital to be raised is likely to be up to CHF5 billion. As part of this effort, the Group and Berkshire Hathaway have agreed in principle that Berkshire Hathaway will invest CHF3 billion in Swiss Re. The final closing of the investment is subject to shareholder approval. The investment is expected to be in the form of a convertible perpetual capital instrument issued by Swiss Re with a 12% coupon. At Berkshire Hathaway's option, it will be convertible after three years into Swiss Re shares, with a price of CHF25 per share (subject to anti-dilution adjustments).

Warren Buffett commented, "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."

Consistent with the focus of maintaining a strong capital position for client opportunities and shareholders, Swiss Re intends to ask the General Assembly for authorisation for a rights offering to existing shareholders of up to CHF2 billion, subject to market conditions.

Additionally, the Board proposes to reduce the dividend for 2008 to a nominal amount.

The Group has also agreed, subject to regulatory approval, to enter into an adverse development cover with Berkshire Hathaway on the Group's total Property & Casualty reserves.

The contract will provide total coverage of CHF5 billion.

Well-positioned to take advantage of client opportunities Swiss Re's (re) insurance business is strong, and the Group's actions today will better enable it to further support its client base. The combination of capital actions, including the investment from Berkshire Hathaway, the additional rights offering, and a reduction in dividend, coupled with significant de-risking of the investment portfolio, will further position the Group to deliver high- quality client solutions and benefit from the improvement in (re)insurance markets.

The information provided in this release is preliminary and all figures mentioned are based on preliminary and unaudited data.

Final results may change. Swiss Re will report its full year 2008 results on 19 February 2009.

Company Web Site: http://www.swissre.com

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