Buffett rescues Swiss Re

After forecasting dismal 2008 results, Swiss Reinsurance Group has announced that it will receive a capital infusion from billionaire Warren E. Buffett. His company, Berkshire Hathaway Inc. of Omaha, Neb., will invest 3 billion Swiss francs ($2.57 billion) in Swiss Re of Zurich Switzerland, boosting the reinsurance giant’s capital levels. The carrier estimates that its year-end capital levels were between 1.5 billion to 2 billion francs ($1.29 billion to $1.72 billion) below what was necessary for it to maintain its AA rating. The capital infusion from Berkshire Hathaway will come in the form of bonds issued by Swiss Re with a 12% coupon. After three years, the bonds may be converted into Swiss Re shares, valued at 25 francs ($21.45) per share. Berkshire Hathaway’s stake could amount to 20% of Swiss Re. Swiss Re forecast that it would be in the red for the 2008: It estimates it will take a 1 billion franc loss ($858 million). The company attributed the loss to mark-to-market losses that it recognized in impairments in its investment portfolio. Swiss Re also recorded a 6 billion franc ($5.15 billion) mark-to-market loss on credit default swaps and the former trading business of its financial markets unit. That also includes a 2 billion franc ($1.72 billion) mark-to-market loss on structured credit default swaps. New York-based Standard and Poor’s Ratings Services immediately placed its AA- rating on Swiss Re’s long-term counterparty credit and insurer financial strength ratings on CreditWatch with negative implications. “Both the magnitude of the additional write-downs and the resulting need to raise capital are outside of our expectations,” S&P credit analyst Peter Grant said in a statement. The firm expects to resolve its CreditWatch in two weeks and says it does not expect to lower Swiss Re’s ratings by more than one notch, or below A+.