Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Insurance-linked securities market poised for growth, says Swiss Re


The insurance-linked securities market is now 15 years old (see our Deal Directory for details of historic transactions), but the market is still poised for further growth as reinsurers, corporations and governments all seek out ways to efficiently transfer risk, according to a report published today by reinsurer Swiss Re. Sponsors continue to successfully access capital markets solutions to finance growth, manage capital and transfer risks related to natural catastrophe and other extreme or peak events.

The new publication from Swiss Re is aimed at both companies looking to transfer peak risks off their balance sheets to the capital markets, as well as qualified institutional investors who want to dedicate some of their funds to insurance-linked securities as an alternative asset class offering a low-level of correlation to the wider financial markets. The report titled ‘The fundamentals of insurance-linked securities‘ is really a must read for anyone involved in the sector or seeking to get involved in or broaden their knowledge of ILS, catastrophe bonds  or, as Swiss Re say, “Transforming insurance risk into transparent and tradable capital market products”. The report offers both an overview of the structures available and give a summary of the benefits both from the point of view of the sponsor and the investor.

It’s amazing to think that the market has now been in existence of 15 years, during which time we’ve seen considerable innovation in the structures, modelling tools, collateral mechanisms, risks transferred and types of companies involved. Artemis has been covering these markets for 12 of those years and we expect to be covering the structures that emerge as the market matures and innovates further in the future.

Swiss Re has sponsored close to $10 billion in ILS transactions for its own protection and have in total supported close to $20 billion of life and non-life transactions, making them one of the most prolific players in the ILS and cat bond markets. As well as helping to keep deal flow coming to market Swiss Re are also involved in many initiatives which held the ILS market develop and innovate. Among these initiatives are their involvement in PERILS AG which has helped to increase the volume of European windstorm cat bonds and industry loss warranties. Swiss Re have also developed the first Longevity Divergence Index which was used to bring their Kortis longevity linked securitisation to market and is expected to be used in future transactions as longevity risk increases in profile.

Insurance Linked Securities are an integral component of our product offering to clients and we are starting to see increasing demand for non-US peak risks,” says Matthias Weber, Head of Property & Specialty at Swiss Re. “By offering ILS, Swiss Re can combine its strong origination and distribution platforms with its ability to assume basis risk and tail risk.”

“The ILS market is strong and poised for continued growth,” says Martin Bisping, Head of Non-Life Risk Transformation at Swiss Re. “Our investor and sponsor base is made up of stable long-term partners and we consistently generate new interest in the sector. We believe this combination will lead to a continuation of robust ILS market growth.”

Swiss Re conclude the report by discussing the prospects for further market growth. They hope that the market continues to broaden its horizons to introduce additional risks into the market. They also say that as more transactions feature transparent index-triggers the supply-demand dynamics of the market will be engaged. This type of liquidity in issuance and investment is the factor that could help the market significantly outgrow its current size in our opinion. Swiss Re say that increased transparency will attract new money from investors into the market and this will benefit the sponsors of transactions with better pricing and lead to elevated new issue volumes.

This report from Swiss Re is a very comprehensive read and we’d recommend anyone seeking to better understand the pro’s and con’s of insurance-linked securities and catastrophe bonds reads it. It’s available in PDF format here.

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