Ratings agency A.M. Best interviewed Denis Kessler, the chief executive officer of French reinsurance company SCOR recently for its BestDay Audio Podcast. Amongst other topics, Kessler discussed catastrophe bonds as capital protection tool.
Kessler discussed cat bonds and alternative reinsurance capital, how SCOR makes use of these tools and the role the reinsurer plays in these markets.
Kessler discussed SCOR’s recent completion of the Atlas IX Capital Limited which was the reinsurers first mortality catastrophe bond issuance. SCOR has issued many natural catastrophe bonds in the past and has utilised swaps for gaining retrocessional extreme mortality protection, but this was its first securitization of mortality risk.
Kessler said that the Atlas IX deal was ‘quite innovative’ providing his group with cover against mortality deviations and had a low trigger of 102%, providing more effective cover to SCOR as it would begin to pay out after a mortality deviation of just 2%.
Kessler said; “I protect my group, in a very efficient way for the years to come. A pandemic is the main risk for a large global group today, especially with such a huge involvement in life reinsurance.”
The protection that this mortality cat bond gives SCOR is clearly considered capital protection at the CEO level. Kessler explained; “I am quite happy to have been able to put in place what I call a capital shield strategy to protect the interests of my shareholders and the interests of my stakeholders, through the issuance of this quite innovative mortality bond.”
When asked whether SCOR planned to issue further mortality cat bonds to protect it against increases in mortality rates in other regions of the world, Kessler said that he believes that mortality bonds will expand into other areas of the world once there is reliable data available.
During the interview Kessler was asked for his views on alternative reinsurance capital. He said he is ‘quite agnostic’ about insurance-linked securities (ILS) and alternative capital, explaining that the capital markets provide capital now as investors are attracted to the space resulting in more of an influx.
Kessler commented; “We are agnostic. Cat bonds are cat bonds.” He explained that SCOR uses catastrophe bonds not just for mortality but also to cover the P&C part of the group. “It’s very useful and it complements the traditional retrocession mechanism, so to my point of view it is a very useful way to protect my shareholders and stakeholders.”
Kessler said that SCOR is also involved in alternative capital and ILS by helping its clients to issue cat bonds by acting as a transformer, a service for which it receives fees. SCOR has also created Atropos, a fund which is open to third-party investors and which invests in ILS assets such as cat bonds.
So SCOR works across the spectrum of the ILS and alternative reinsurance capital space, issuing its own transactions and leveraging the capital markets for retrocessional capacity, transforming risk for clients and enabling them to leverage the ILS investor base and investing funds on behalf of third-parties to provide access to the returns of ILS and reinsurance.
SCOR further demonstrated its appetite to diversify its sources of capital for its retrocessional reinsurance protection recently when it expanded its contingent capital facility and added protection for extreme life events to it, it already covered natural catastrophe events.
Just this week Artemis also uncovered the launch of SCOR’s new retrocessional reinsurance sidecar, Atlas Reinsurance X Ltd. which provides the reinsurer with another $55.5m of protection and further diversifies its sources of risk capital.
The interview with Kessler covers a number of other interesting topics. You can listen to the full interview with Denis Kessler, CEO of reinsurer SCOR, below as long as your web browser supports it:
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