Swiss Re , the world's second-biggest reinsurer, boosted its capital by around $3 billion, giving it confidence it can repay a costly convertible loan from billionaire Warren Buffett and regain a key credit rating.

A much improved investment performance also enabled the company to beat profit expectations for the first quarter, despite large natural catastrophe claims eating into earnings.

Swiss Re, which had to take a costly convertible loan from Buffett-owned rival Berkshire Hathaway last year after bets on risky assets backfired, said its excess capital rose to more than $12 billion, improving its chances of recapturing its coveted AA credit rating and repaying Buffett.

This level of excess capital gives us increased confidence that we can regain the AA rating, said Swiss Re Chief Financial Officer George Quinn. We'll also be able to redeem the Berkshire Hathaway investment and still retain a very significant buffer above the minimum level required for AA.

Shares in Swiss Re traded 5.5 percent higher at 0909 GMT, outperforming a 0.7 percent rise in the STOXX 600 European insurance index <.SXIP>, which was held back by a 2.7 percent fall in Axa after Europe's second-largest insurer gave disappointing first-quarter numbers.

The high investment income made up for the worse technical insurance result, said analysts at Zuercher Kantonalbank. Developments in the capital position look solid as well.

Bumper investment income also lifted the profit of fourth-placed reinsurer Hannover Re and Swiss insurer Zurich Financial Services , despite high catastrophe claims, in results reported this week. Reinsurance primus Munich Re releases results on Friday.

Claims on catastrophes like Chile's magnitude 8.8 earthquake, a wind storm in Europe and floods in Australia ran to $720 million in the first quarter at Swiss Re, against the $1 billion Swiss Re would see as normal for the full year.

If natural catastrophe losses were as usual for the rest of 2010, they would be bigger than Swiss Re previously predicted for the full year, leaving a dent in earnings, Quinn said.

The high first-quarter claims pushed Swiss Re's Property and Casualty unit's combined ratio above the 100 percent mark that separates operating profitability from unprofitability to 109.4 percent, against a much healthier 90.2 percent a year earlier, when claims were low.

Swiss Re estimated its loss from the explosion of the Deepwater Horizon oil rig in the U.S. Gulf of Mexico in April, which caused one of the worst oil spill in U.S. history, at $200 million, with total insurance industry losses between $1.5 billion and $3.5 billion.

The high claims rate might help to stabilize reinsurance prices, which failed to rise in the global financial crisis as many companies expected, but it would likely take another major event to push prices up, Quinn said.

(Reporting by Jason Rhodes; Editing by Erica Billingham)