March 25, 2010 / 1:53 PM / in 10 years

Buffett raises Munich Re stake to nearly 8 percent

FRANKFURT (Reuters) - Famed U.S. investor Warren Buffett, already Munich Re’s (MUVGn.DE) biggest shareholder, has built up his stake in the world’s No. 1 reinsurer to nearly 8 percent, increasing his bet on the sector’s long-term prospects.

Buffett, who owns the world’s third-biggest reinsurer Berkshire Hathaway Inc (BRKa.N) (BRKb.N) as well as a 3 percent stake in No. 2 player Swiss Re RUKN.VX, exercised options on a stake of 2 percent in Munich Re on March 11, Munich Re said on Thursday, bringing his position to 7.988 percent.

Munich Re shares have risen more than 10 percent since January 15, the day before Buffett’s stake crossed over the 3 percent mark for the first time, triggering a disclosure announcement.

The Stoxx Europe 600 index of insurance shares has risen 2.8 percent over the same period .SXIP.

Buffett’s stake is now worth more than 1.8 billion euros ($2.4 billion), based on the company’s market capitalization of over 23 billion euros.

Analysts and even Munich Re itself have only been able to speculate about Buffett’s motives for building up the holding, as Buffett’s representatives have stuck to their policy of declining comment.

INCREASED EXPOSURE

Most observers say the interest is financial rather than strategic.

“Buffett clearly likes the industry and has known all the participants well over a long period of time,” said insurance analyst Ben Cohen at brokerage Collins Stewart.

If Buffett considered reinsurance industry margins as good and wanted to increase his exposure, buying stakes in competitors would give him that exposure without the danger of influencing reinsurance prices, analysts said.

Further raising its attractiveness, Munich Re has been buying back its own shares and has raised its dividend.

In May 2007, the company unveiled a 5 billion euro share buyback programme, of which 4 billion is expected to have been purchased by April this year.

Munich Re Chief Executive Nikolaus von Bomhard said Buffett’s arrival as a major shareholder backed the company’s strategy of reducing earnings volatility over the long term.

“He would not have bought in if he didn’t think our strategy good,” von Bomhard said earlier this month.

The presence of Buffett, a traditional proponent of long-term investing, would help highlight Munich Re’s efforts to the wider investor community, Chief Financial Officer Joerg Schneider added.

“He is ideal for us,” he told Reuters.

Buffett’s Munich Re stake was revealed 11 months after Berkshire injected 3 billion Swiss francs ($2.8 billion) into Swiss Re RUKN.VX, after the world’s second-largest reinsurer wrote down large sums of illiquid assets.

(Additional reporting by Michael Shields; Editing by David Holmes)

($1=1.071 Swiss Franc)

$1=.7508 Euro

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