Hurt by credit default swaps, Swiss Re announced an anticipated 2008 loss of approximately $860 million) and a $2.58 billion investment by Warren Buffett to shore up its capital position.
The Zurich company says that its total capital need could total $4.3 billion.
Following the announcement, Standard and Poor’s placed the company’s AA- insurer financial strength rating and long-term counterparty credit rating on CreditWatch with negative implications. The action was taken because “both the magnitude of the additional write-downs and the resulting need to raise capital are outside of our expectations,” according to S&P analyst Peter Grant.
Swiss Re said it took the action because its capital position was between $1.29 billion to $1.7 billion. Based on current estimates, the total amount of capital to be raised is $4.3 billion, the company said.
Consequently, Berkshire Hathaway will invest in Swiss Re through a convertible perpetual capital instrument with a 12% coupon, subject to shareholder approval. The instrument can be converted into Swiss Re shares at $ 1.50) after 3 years, subject to anti-dilution adjustments.
At mid-morning following the announcement, Swiss Re’s stock was down 27.5% to $18.79.