Swiss Re Insurance-Linked Fund Management

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As SoftBank & Swiss Re talks stall, the investor could look at ILS options


As the negotiations between reinsurance giant Swiss Re and technology and telecoms investor SoftBank are reported to have stalled, with the pair said unable to agree on the size of the stake, among other things. Perhaps SoftBank could put its innovation hat on and leverage ILS trends as a way to do something different in reinsurance?

Swiss Re SoftBankRegular readers will note that we’re big fans of doing something different and if SoftBank cannot agree on a way forwards with Swiss Re, there are other ways the tech investor could access the reinsurance market, perhaps even more meaningfully.

It was reported yesterday, by news sources and our sister site Reinsurance News, that SoftBank and Swiss Re cannot come to agreement on the size of the investments stake, while the price may also be deemed too high by the Masayoshi Son founded Japanese tech firm, and the level of control in the reinsurer may be insufficient as well.

That’s a number of issues to overcome and sometimes these types of negotiations do go nowhere in the end. But SoftBank does have options and if it’s really keen to enter the insurance and reinsurance market with a bang, it’s certain to be exploring numerous avenues it could pursue.

Among those would be speaking to other reinsurers and trying to find another willing company looking for a major investor. One such potential candidate would be Munich Re, which recently said an anchor investor would be of interest to it.

But perhaps SoftBank could think outside of the box and look to other ways that could secure it access to a product set, distribution, capacity and capital, as well as a way to put some of its own capital to work if it chose to.

Much of the discussion of SoftBank’s interest in reinsurance has been over the emulation of a Berkshire Hathaway float strategy and getting its hands on Swiss Re’s investment assets, to put into its own strategies.

But, in reality, it would be very hard for SoftBank to do this, unless it had a controlling stake in the reinsurer, as the change in strategic direction would be significant and shareholders would no doubt have something to say.

More likely, perhaps, is that SoftBank recognises the potential to embed financial services products into its tech investments, as well as the chances to generate returns off an expanding re/insurance mission to close protection gaps around the world.

The reach that technology-led distribution could provide to re/insurance products is huge, while SoftBank could offer protection products through its investments, backed by reinsurance capital.

If that was a strategy of interest to the tech investors then perhaps another way forwards would provide similar levels of benefits to it, while moving away from the traditional model and maximising the efficiency of capital.

Perhaps SoftBank should take an anchor stake in a major global re/insurance broker and then bolt on an ILS fund style pool of capacity to finance the risks sourced through the brokers and SoftBanks enormous distribution reach?

Depending on SoftBank’s strategy, which of course nobody knows and we can all but guess, this alternative could present an efficient way to achieve similar to taking a stake in a major reinsurer. In fact, given the way the market is moving in re/insurance, the use of the most efficient capital vehicles, alongside its own investments, perhaps with a rated balance-sheet added into the structure for leverage, could be an interesting proposition.

Mobilising the most efficient form of capacity, through the distribution network of a major broker that has perhaps even more reach than a reinsurer, as well as the expertise required to analyse, price and structure risk, could be just as compelling a proposition.

Swiss Re reports its results in the morning for the first-quarter, meaning there is sure to be more speculation related to SoftBank. We thought we’d add our own speculative suggestion, which is likely far from where this much discussed deal will end up, but could be an interesting thought-experiment for Masayoshi Son to consider.

Bringing the strategies of the ILS market into the equation, alongside mass distribution and technological innovation, could mean excess returns and also market growth over time, making it an interesting suggestion for any major investor to consider (we feel).

Update: Our sister site Reinsurance News reported that Swiss Re CFO John Dacey confirmed that talks are ongoing, but that they haven’t moved forwards and there remains no clear indication a transaction with SoftBank will be reached.

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