Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Capital the “entry ticket” not the main value proposition: Mumenthaler, Swiss Re CEO


While capital has become more abundant, fungible and cheaper as a result over the last decade, it remains important as the “entry ticket” to the world of insurance and reinsurance, but it is no longer the main value proposition, Swiss Re CEO Christian Mumenthaler said today.

christian-mumenthaler-swiss-re-ceoSpeaking earlier today during a media event for the world’s largest reinsurance company Swiss Re, its CEO explained how the landscape has changed and what his firm has done to ensure it remains relevant and adds value, beyond merely bringing capital to the space.

Discussing how the industry has transformed over the last decade, Mumenthaler explained that capital is one of the biggest trends that has impacted reinsurance.

He said that capital has become more plentiful, but its value has reduced at the same time, meaning it is chasing opportunities, “including insurance risks, I’m sure you have heard around the cat bond markets, and all the funds that are created around that,” he said.

But what this has meant is, “The fact that capital, which historically was one of most important assets for reinsurers has changed, means also that we have to change, and we have to adapt to these new worlds.

“Capital has not become unimportant, today capital is just the entry ticket, but not the main value of what you need to deliver in the market,” Mumenthaler said.

We’ve written many times about the value proposition of different entities within the reinsurance market chain and that, to ensure you’ve got a sustainable business model, you need to demonstrate the value you deliver and also work out how to price that and get paid for it.

It’s clear Swiss Re has been thinking this way and has identified both values it brings to the market, that it feels provide a competitive edge and a differentiator, but also values it has created within its own operating structure that allow it to remain a large, still growing and particularly important player.

Mumenthaler explained how Swiss Re is adjusting to the new marketplace reality and four of the traits he feels have made Swiss Re successful in this regard, in bringing more to the insurance and reinsurance market than just capital.

“Scale and efficiency continues to be extremely important, or becomes even more important. As certain products get commoditized, you need scale and efficiency,” he explained, saying that this is the first important element to consider.

Size matters of course, but as we all know there are other ways to gain relevance and become an important player in the value chain, not least through demonstrable expertise and insight.

But when you hit the size, capacity and levels of expertise Swiss Re and its thousands of staff hold, you take that to another level.

The second important factor for Swiss Re as it navigates the changing economic and industry environment is its proximity to clients, Mumenthaler said.

“The ownership of the client, being very close to the client, knowing what the client wants, becomes more important. That’s certainly an asset we already have, but which is becoming more important,” Mumenthaler explained.

“We have relationships sometimes going back 150 years uninterrupted, all across the world. So, these relationships become extremely important because, if you’re close to the client, there’s not just a commodity part that you’re seeing, there’s also specific transactions or solutions you can develop together with the client. So client interaction and client centricity becomes a core part of who we are and we have certainly developed in this way.”

It’s worth adding here that Swiss Re is taking this to another level as well, through initiatives like its iptiQ platform, through which the reinsurer effectively white-labels its own balance-sheet and makes it available to partners.

With initiatives like that Swiss Re can expand its own reach significantly, putting its reinsurance balance-sheet in front of the customer-base of partners with distribution deals that bring its underwriting capacity much more directly to consumers.

Similarly, Swiss Re’s Corporate Solutions division is also known for its direct relationships on large transactions, another area where scale is important and perhaps here so too is capital, as being able to do these large deals on your own can win you the ability to transact more directly.

The third factor would also encompass iptiQ, as Mumenthaler said its key to have the breadth of services and solutions that can support client needs.

He explained this as, “Offering things outside of the pure capital transfer, it can be digital solutions, developing products together, finding ways of doing that more efficiently. So, basically, a differentiator, compared to just this traditional, more commoditised reinsurance.”

But the fourth and final trait or factor in Swiss Re’s business model that Mumenthaler sees as a key reaction to the change in the value of capital and in being able to bring more to clients, is alternative capital and insurance-linked securities (ILS).

Which is interesting, that access to the capital markets using ILS structures, for retrocession, risk sharing and as a source of growth capacity, is seen as an important trait by the CEO, even though capital is no longer seen as that important.

Mumenthaler explained that, “For more than a decade, actually more like 20 years, we have developed a team that is doing risk transfer to the capital markets and retrocession.

“We have strongly continued to develop that, because that allows us to access this part, should this develop even further. So, to have a foot also in the capital markets and having all the capabilities and skills to transfer risks to the capital market, which we can bring to our clients and help them to transfer the risks.”

So, while capital may only be an “entry ticket” to reinsurance these days, ILS is perhaps seen as more than that, in the way it adds efficiency and flexibility, even for the world’s largest reinsurer.

Swiss Re has doubled-down on use of ILS capital and technology over the last two years, expanding its Matterhorn Re and recently Vita Capital catastrophe bond programs, growing its multi-investor quota share sidecar Sector Re, expanding direct relationships with large investors such as PGGM and more recently launching its own ILS fund manager, Swiss Re Insurance-Linked Investment Management Ltd. and its first ILS fund.

Mumenthaler closed that section of the discussion by saying that the shift in the industry seen represents a “long term devaluation of capital towards other things that are more important, around risk knowledge and client relationships.”

So it’s encouraging to see that ILS fits into this.

Once again underscoring the fact ILS is much more than just low-cost capital. It’s a true alternative and also a complement to the traditional reinsurance product and the traditional reinsurance business model.

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