The world's second largest reinsurer Swiss Re has divested a part of its US business to the investment vehicle of billionaire Warren Buffett, Berkshire Hathaway, for 1.3 billion Swiss francs ($1.27 billion).

Buffett already has a stake in Swiss Re among his many high profile investments (See: Warren Buffett invests $2.6 billion in Swiss Re).

The Swiss reinsurance giant said the sale frees up capital that it can invest more profitably elsewhere.

"This is a significant step forward in Swiss Re's strategy to increase capital efficiency," said Christian Mumenthaler, who heads the company's life and health department. "The transaction puts us in an excellent position to redeploy the capital at more attractive returns."

Swiss Re said the deal would take effect retroactively on 1 October 2009, adding that the US business had liabilities of around 1.9 billion francs.

The total of Swiss Re's life insurance business in the United States amounted to roughly 6 billion francs in gross premiums last year.

Buffett in February last year injected $2.6 billion into Swiss Re. His firm already owns 3 per cent of the Swiss major, purchased one year back.

The investment was in the form of convertible notes paying a 12 per cent coupon. That means, Berkshire can convert them to Swiss Re shares after three years at a price of 25 francs apiece or continue to receive ''perpetual'' payments of 12 per cent a year.
 
Berkshire owns several major insurance companies, including Geico and reinsurance giant General Re Corp.

It owns a diverse mix of more than 60 businesses-including furniture, jewelry, candy, natural gas and corporate jet firms.