Swiss Re, Berkshire Hathaway May Arbitrate $1 Billion Reinsurance Dispute

Swiss Re and Berkshire Hathaway have a dispute brewing over a reinsurance contract and could be headed to arbitration, according to Swiss Re.

In 2010, Berkshire Hathaway through its affiliate, Berkshire Hathaway Life Insurance Company of Nebraska, entered into a coinsurance agreement with Swiss Re Life & Health America Inc. and a stop-loss agreement with Swiss Reinsurance Co. Ltd. in respect of Swiss Re’s U.S. pre-2004 yearly renewable term life business. The agreements limit Berkshire Hathaway’s exposure to $1.5 billion, Swiss Re said in its third-quarter earnings report.

On the basis of Berkshire Hathaway's perception of how the retroceded business has performed, the company service notice alleges damages of between $500 million and $1 billion, Swiss Re said.

As required by the agreement, the companies have met to discuss the allegations and continue to exchange proposals to resolve the dispute. Failure to resolve the dispute could result in arbitration.

Swiss Re warned that if the matter goes to arbitration, there's no guarantee the arbitrators would agree with Swiss Re, and if the ultimate findings were against Swiss Re, it could have "a material adverse effect on its financial condition and results of operations."

In its third-quarter report, Swiss Re said it believes these claims are without merit.

Attempts to reach Swiss Re and Berkshire for additional comment were not immediately successful.

In 2010, Swiss Re said it entered the transaction with Berkshire Hathaway Group to improve its capital efficiency, (Best's News Service, Jan. 18, 2010). Under the contract, Swiss Re reinsured the closed block of yearly renewable term individual life reinsurance written prior to 2004 on a 100% quota share basis.

Swiss Re was to receive a ceding commission of about 1.3 billion Swiss francs (881 million euros at that time) and release 0.3 billion francs of capital that can be re-deployed. According to Swiss Re, the ceding commission would partly offset reduced investments of 1.9 billion francs.

In 2009, when Swiss Re faced a net loss of 1 billion francs for 2008, Swiss Re turned to Berkshire Hathaway for a 3 billion franc capital infusion aimed at shoring up its capital base (Best's News Service, Feb. 5, 2009).

Berkshire Hathaway Life Insurance Company of Nebraska currently has a Best's Financial Strength Rating of A++ (Superior). Swiss Re's subsidiaries have Best's Financial Strength Ratings of A+ (Superior).

(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)