Swiss Re Insurance-Linked Fund Management

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Capital markets make sense for certain risks & here to stay: Swiss Re CEO


The securitisation of risks via third-party backed reinsurance capital “makes perfect sense” for natural catastrophe risks owing to the underinsurance of peak risks, and is an important risk transfer tool that is most likely here to stay, according to Christian Mumenthaler, the Chief Executive Officer (CEO) of Swiss Re.

Addressing an audience at the Swiss Re media conference during the 60th anniversary of the meeting of the reinsurance industry in Monte Carlo this week, the 2016 Monte Carlo Rendez-vous, Swiss Re CEO Christian Mumenthaler highlighted the importance of the capital markets in underserved natural catastrophe re/insurance lines.

As an example, Mumenthaler noted that 85% of Californians are not insured against earthquake risk, a trend that is far from rational, he added.

“I think securitisation is a really good tool for the nat cat risks. I think to have capital markets come in for risks that are huge, and well understood, short-term, etc., makes perfect sense, and I would think that would continue to grow quite significantly,” said Mumenthaler.

So far, the majority of capital markets and insurance-linked securities (ILS) tools such as catastrophe bonds and collateralised reinsurance, for example, have focused on the property catastrophe space, which is well understood, easier to enter and benefits from advanced modelling, particularly in mature markets.

It’s no secret that ILS’ focus on property catastrophe business is part of the reason this area of the global re/insurance sector has witnessed the steepest rate declines in recent times, but as underlined by Mumenthaler, its presence is important and supports increased protection against peak risks across the globe.

“We have been doing this for maybe two decades, and we will continue to do that, it’s not anything new for us, it’s one tool in the toolbox which we have,” added Matthias Weber, Chief Underwriting Officer (CEO) at Swiss Re.

Some in the sector have noted that a portion, admittedly a very small portion of third-party reinsurance capital is beginning to find its way into longer-tailed lines such as casualty via collateralised reinsurance and other forms, but Swiss Re currently doesn’t see this happening in any meaningful way.

“I have to say I don’t see securitisations in many other lines of business, I just can’t see it happening for the ratio reasons, lack of modelling, there’s lots of reasons that I mentioned earlier. And we haven’t seen it, right? That was my job in 2003 to have as many lines as possible, and I still today don’t see it.

“So I think it’s an important, and it’s a good tool and it’s going to work for some lines of business,” continued Mumenthaler.

Since alternative reinsurance capital really expanded to a size that started to influence pricing and intensify competition in the sector, it’s rarely discussed in the space without a mention of its permanence post-event.

And this was something that was also mentioned by Swiss Re during its media conference at Monte Carlo.

“We think that the pure cat play, cat bonds etc. is probably here to stay. There’s this huge gap in protection, and already for us as a reinsurer it’s a big part of our portfolio, so if you want to have more people insured, you need to have access to a lot of capital,” continued Mumenthaler.

Further supporting this point, Weber explained that it will most likely be existing players, that includes those in the alternative capital market space, that will increase capacity should a substantial volume of capital leave the space in the future, resulting in a truly hard market, as opposed to the emergence of a ‘class of 2018,’ for example.

Read all of Artemis’ Monte Carlo Rendez-vous coverage here.

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