Warren Buffet Takes 3% Stake in Swiss Re
Dateline:  January 24, 2008

Last updated: 

It was announced today that Warren Buffet has entered into a deal with Swiss Re (RUKN.VX).  Shares were up to 12% in early trading.  Swiss Re said that Buffett's investment group, Berkshire Hathaway (
BRK-A) would take a 20% ownership position in all property and casualty reinsurance business, while taking an overall 3% in the parent company, Swiss Re.  Financial details were not disclosed.

This announcement provided major relief to Swiss Re shareholders who know that, where Warren Buffett goes, so go many individual investors, who may tend to blindly follow his lead, hoping that he has done the homework that is necessary to spot a long-term growth opportunity.

The deal is interesting, if not complex.  The two companies entered into an agreement known as a "quota share contract" where, for the next five years, Swiss Re will assign 20% of its property and casualty premiums to Berkshire Hathaway in return for a reduction of its risk.

Swiss Re has underperformed its peers in the insurance sector for years and, following its announcement of a huge subprime-related writedown last November, its shares dropped more than 20%.  That has created an unusual value situation for Swiss Re that obviously drew Warren Buffett's attention.  The shares in Swiss Re actually look cheap, when you consider it is only trading at about 6x forward earnings.  Further confidence is gained by the fact that the company did not use the strength of this news of Mr. Buffett's investment, as an opportunity to announce further losses, offering the hope that there will be no more writedowns or disappointments to come in the near future.

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All information obtained from the SEC Edgar Form 13F-HR - Holdings Report, as of 2007-09-30


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