By Ulrike Dauer Of DOW JONES NEWSWIRES
Swiss Reinsurance Co. (RUKN.VX), which has regained a solid capital basis over the past year, plans to redeem a CHF3 billion bond held by Warren Buffett's Berkshire Hathawy Inc. (BRKB) as early as possible, the company's chief financial officer said Thursday.
"We plan to redeem the bond earlier rather than later," CFO George Quinn told Dow Jones Newswires. "We plan to redeem it early in the possible redemption period, which starts in March 2011."
Swiss Re was badly hit by the credit crisis, losing its treasured Double-A rating in the process and being forced to raise capital through a deal with Berkshire Hathaway. In March 2009, Berkshire Hathaway agreed to buy a CHF3 billion perpetual corporate bond that is convertible into Swiss Re shares. The bond, which bears a 12% fixed interest rate annually on the outstanding face amount, can be redeemed within a year's time starting in March 2011.
Swiss Re said earlier Thursday that its capital exceeded Double-A rating capital requirements by some $10 billion at the end of June. Quinn said share buybacks are one consideration among several to actively manage the company's capital. However, the company won't buy back own shares in 2010, Quinn said.
"The emphasis is on the convertible, which will be the first buyback," he said. "We won't buy back own shares before the redemption of the convertible."
Active capital management "is relatively important" for the company to reach its goal of a 12% return on equity over the business cycle, Quinn said.
"Unless there's a significant rise in market prices, we have to find a way to reduce the excess capital," which could be either via "dividends or other forms of capital repatriation, which would include share buybacks."
Quinn also said the reinsurer is mulling a small increase in the stock portion in the company's investment portfolio, but only slightly and gradually.
"We are considering increasing the amount of stocks in the portfolio, but this will happen cautiously," Quinn said. "A stock portion of 1%-2% would be possible short-term to medium term, depending on market conditions. And we would only raise the stock portion gradually."
Currently, the company has much less than 1% in global public equity in the investment portfolio. It also has some stocks in alternative investments, such as hedge funds.
The European Union's planned new capital requirement for insurers, known as Solvency II, will somewhat increase merger-and-acquisition activity among insurance, but this will predominantly affect smaller and mid-sized players, Quinn said.
"Our expectation from Solvency II is that some companies will benefit, some will have to make changes, and those will buy additional reinsurance or consolidate," Quinn said.
"Solvency II should drive some consolidation, but more in the midsize market," Quinn said. "There could be some strain on mutuals."
Swiss Re competes with companies like Munich Re, Scor SE (CS.FR) and Hannover Re AG (HNR1.XE) for business with primary insurers wanting to spread risks on their balance sheets further.
By Ulrike Dauer, Dow Jones Newswires;
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