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Warren Buffett Increasing Stake in Munich Re

Source: WSJ

Posted on 19 Oct 2010

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Billionaire investor Warren Buffett continues to increase his stake in the company and that he plans to raise the holdings further over the next year said German reinsurer Munich Re.

Berkshire Hathaway Inc., along with Mr. Buffett, now own more than 10% of Munich Re, the Munich-based company said in a regulatory filing. The stake is valued at around €2.1 billion ($2.9 billion), based on Munich Re's current market capital.

Munich Re reiterated that Mr. Buffett doesn't plan to influence the company's management or dividend policy.

Collins Stewart Europe analyst Ben Cohen said Mr. Buffett's move is likely aimed only at finding a stable investment, as opposed to taking a strategic view on Munich Re. "He likes the shares and they remain fairly cheap against book value," Mr. Cohen said. "And even if the reinsurance market remains sluggish, it probably at the very worst moves sideways in giving you a decent payout."

Despite the wording of Munich Re's regulatory filing, which mentions Mr. Buffett by name, the vast majority of the investment is held by Berkshire and its subsidiaries. Mr. Buffett said in May that his personal portfolio contained 100,000 shares of the reinsurance company.

Mr. Buffett increased Berkshire's stake in Munich Re to just under 8% in April from around 3% in March. The latest filing says Mr. Buffett and Berkshire intend "to acquire further voting rights within the next twelve months."

Mr. Buffett didn't respond to requests for comment left with an assistant before business hours in Omaha, Neb., where Berkshire is based.
Analysts have previously suggested that Mr. Buffett's investment in Munich Re could indicate that reinsurance rates could rise in the future, boosting profit for Munich Re and its rivals. Berkshire itself is one of those rivals; it owns and operates its own insurance operations, including General Re and Berkshire Hathaway Reinsurance Group.

Mr. Buffett and his insurance lieutenant, Ajit Jain, cut back the amount of coverage that Berkshire Hathaway Reinsurance Group sells this year because they haven't been satisfied with the going rate for the types of protection the unit offers. Mr. Buffett said in May that Munich Re was "an attractive investment" and one that "has nothing to do with our activities in reinsurance."

Berkshire's investments also include Munich Re's main rival, Swiss Reinsurance Co. Berkshire bought a 3% stake in Swiss Re in January 2008. Mr. Buffett's firm has assumed 20% of Swiss Re's property-casualty business for five years, and Berkshire bought a block of life reinsurance from its rival early this year. Swiss Re also got an injection of three billion Swiss francs ($3.1 billion) from Berkshire in 2009. The securities Mr. Buffett purchased in the private deal pay Berkshire 12% interest annually.

A spokeswoman for Munich Re said the company "was pleased about every shareholder" but wouldn't provide further details.

Munich Re Chief Executive Nikolaus von Bomhard said earlier this year that he welcomed Mr. Buffett's investment as an indication that he approved of the company's strategy.