Berkshire and Swiss Re face costly fall-out

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10 December 2012

A life insurance contract dispute between Berkshire Hathaway and Swiss Re appears to have spread to the general reinsurance business.

The US conglomerate says it will not renew Swiss Re’s quota share reinsurance contract.

Berkshire Hathaway Reinsurance has written property and casualty business on a quota share and excess basis with Swiss Re since January 1 2008.

The contract covers 20% of all of Swiss Re’s property and casualty contracts and expires at the end of this month.

Premium earned on these contracts was $US848 million ($809 million) in the third quarter of this year, according to Berkshire Hathaway’s results. Total premium for the nine months to September 30 was $US2.4 billion ($2.2 billion).

But Berkshire Hathaway suffered $US724 million ($691 million) of catastrophe losses in the first nine months of last year under the quota share contracts, mainly because of events in Japan and New Zealand.

It is pursuing Swiss Re for between $US500 million ($477 million) and $US1 billion ($954 million) under the co-insurance agreement involving the life companies of the two multinationals.

Swiss Re says the two companies have met to discuss the claims and talks are continuing. If this fails the dispute will go to arbitration.

A defeat in arbitration could have a material adverse effect on Swiss Re’s financial position, it warns.

Swiss Re says Berkshire Hathaway’s claims are “without merit”.