Swiss Re may leverage third-party capital in Admin Re unit

Reinsurance firm Swiss Re is considering allowing third-party capital sources to enter its Admin Re unit in some form, according to comments made at the reinsurers recent investor day. The reinsurer would consider allowing third-party capital providers to participate in a transaction to buy new blocks of life business.

The Admin Re division of reinsurer Swiss Re focuses on buying closed books of life and health insurance business, entire lines of business and even the entire stock of life insurance companies. It is designed to help insurers offload the cost of managing books of life and health business while Swiss Re aims to profit from running down the business.

At its recent investor day, held on the 24th June, Group CEO of Swiss Re Michel Lies said that third-party capital was an option for Admin Re. Lies said; “We are considering potentially allowing third-party capital to enter the business in some way, which will also be part of the transaction to acquire new block of business.”

It’s interesting to see comments from Swiss Re about third-party capital as the reinsurer does not tend to leverage outside capital, aside from shareholder, within its underwriting business as part of its strategy. Swiss Re is well capitalised and has not to date jumped into the growing third-party reinsurance capital management arena. Swiss Re does leverage third-party capital for its own retrocession through sale of catastrophe bonds but it does not actively manage underwriting business using third-party capital in a concerted way.

The Admin Re business has been somewhat of an uncomfortable thorn in the side of Swiss Re in recent years. It made a high-profile loss on selling the U.S. side of the Admin Re business last year, an unavoidable cost associated with offloading its U.S. portfolios.

Taking on third-party capital, and so sharing some of the financial risk associated with the closed books of life insurance business, makes a lot of sense for Swiss Re. It would minimise its exposure to this part of its business, allow it to make larger acquisitions without having to dip into its own capital and allow it to make some fee profit by managing the life books for third-party capital providers.

For third-party capital providers, allocating capital to Admin Re may be a very useful way to gain exposure to the risks and returns of life insurance business while safe in the knowledge that a firm with the power and scale of Swiss Re is managing the book. This could be a very attractive option for some institutional investors and the returns of closed life books can be reasonably high.

Lies continued by saying that he acknowledged that by taking on third-party capital to buy closed life books it would dilute Swiss Re’s ownership on the business, but that he sees this as a strategic option. He said that he hoped to have something to say on this topic later in the year, so it is possible that Swiss Re is already in negotiations with third-party capital providers.

We’ll keep you posted if any announcement is forthcoming from Swiss Re on the topic of letting third-party capital into Admin Re later this year.