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
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