28 March 2013 News

Swiss Re-Berkshire Hathaway settle dispute

Swiss Re has settled its dispute with Berkshire Hathaway over a life retrocession agreement which was concluded in 2010. The Swiss reinsurer has agreed to recapture certain treaties while Berkshire Hathaway will make a payment of $610 million to Swiss Re.

Swiss Re says the settlement is expected to lead to an initial gain of approximately $100 million for Swiss Re in the first quarter of 2013. The limits under the contract have also been amended. Berkshire Hathaway will now assume total losses of up to $1.05 billion under the contract compared to $1.5 billion in the original agreement.
In January 2010, Swiss Re entered into a retrocession transaction with Berkshire Hathaway for a portfolio of Swiss Re's pre-2004 yearly renewable term life business. The transaction consisted of two parts: a coinsurance agreement in which Swiss Re Life & Health America retroceded a portfolio of business to Berkshire Hathaway; and a stop loss agreement extended by Swiss Reinsurance Company, which limited Berkshire Hathaway's exposure in the overall transaction to $1.5 billion. Both covers were effective from 1 October 2009.
As Swiss Re had reported in recent financial statements, Berkshire Hathaway served notice setting forth allegations of damages.

The effect on Swiss Re's performance beyond the first quarter of 2013 as a result of the agreement reached with Berkshire Hathaway will depend on the performance of both the recaptured business and the business that remains covered by the original retrocession agreement, the reinsurer said.

Prior to recapture, the treaties had been producing losses. This may continue until the performance improves or steps are taken to mitigate the causes of the losses, Swiss Re said. There is no assurance that the payments received from Berkshire Hathaway will be sufficient to cover future losses.

Total recoveries from Berkshire Hathaway to date, including the recapture payments agreed as part of this settlement, are $815 million.

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