A unit of Berkshire Hathaway has struck a $1.3 billion deal with Swiss Re for a block of the company’s individual life reinsurance business where it will receive premiums, but also be liable for up to $1.5 billion in claims.

Warren Buffett

Swiss Re announced that it will, on a 100% quota share basis, reinsure a closed block of yearly renewable individual life reinsurance business, written prior to 2004, with Berkshire Hathaway Life Insurance Co. of Nebraska.

The move, effective Oct. 1, 2009, frees up capital for Swiss Re, which will report the transaction in the first quarter. The Swiss firm will receive $1.3 billion and will release $292,000 of capital to support the business as it continues to provide administration and reporting services for the business, according to a statement.

Swiss Re said it believes the proceeds and capital released by the transaction “can be more efficiently employed to achieve a higher return,” according to a statement, but added it “remains committed” to the U.S. life reinsurance marketplace, as well as to its clients.

“This is a significant step forward in Swiss Re’s strategy to increase capital efficiency,” said Christian Mumenthaler, Swiss Re’s head of life & health. “By transferring this block of life business, Swiss Re is monetizing intangible assets and freeing up capital. The transaction puts us in an excellent position to redeploy the capital at more attractive returns.”

The move will also make Berkshire Hathaway, run by CEO Warren Buffett, responsible for nearly $1.5 billion in potential losses, according to media reports.

In February 2009, Berkshire Hathaway invested $2.6 billion in Swiss Re, with the opportunity to convert that investment into conventional Swiss Re shares in 2012, giving it control of one-quarter of the Swiss firm, according to press reports.

Omaha, Neb.-based Berkshire Hathaway also owns GEICO and reinsurance arm General Re.