The total amount of capital to be raised is likely to be up to CHF5 billion
Swiss Re has said that in addition to de-risking in its investment portfolio, the group is raising CHF3 billion of capital from Berkshire Hathaway, subject to shareholder approval, and will consider equity raising of up to CHF2 billion, subject to market conditions.
Based on current estimates, the total amount of capital to be raised is likely to be up to CHF5 billion. The investment by Berkshire Hathaway 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.
The group has also said that it expects to report a net loss for the full year 2008 of approximately CHF1 billion. Shareholders’ equity at December 31, 2008 is estimated to be between CHF19 billion and CHF20 billion. The reduction in shareholders’ equity in the fourth quarter of 2008 is attributed to unrealised losses on investments and the impact of exchange rate fluctuations.
As part of an overall de-risking, Swiss Re’s 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 insurance activities and is linked with products underwriting and client markets to provide insurance-related solutions to clients.
Warren Buffett, CEO of Berkshire Hathaway, said: 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.