Swiss Re Insurance-Linked Fund Management

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Sidecar & cat bonds help Swiss Re manage growing nat cat book


As Swiss Re grows its natural catastrophe exposures, which CEO Christian Mumenthaler today called “a core competence”, the company is benefiting from its expanding use of alternative reinsurance capital and insurance-linked securities (ILS), CFO John Dacey explained.

swiss-re-building-logo-newSwiss Re reported this morning that it achieved significant growth in its natural catastrophe reinsurance book at the January 2022 renewals, growing its nat cat premiums by 24%.

At the reinsurers earnings call today, analysts and media questioned the natural catastrophe growth, asking how Swiss Re feels it can grow into cat business, when competitors are pulling-back and in some cases slashing their catastrophe exposures.

CEO Christian Mumenthaler explained that catastrophe business remains core to Swiss Re.

“We really see this as our core competence, to write nat cat and we have a whole team of scientists, we have models, and I think we have a very good track record on nat cat. Obviously, there’s volatility but we have a good track record, and we follow the climate science very closely,” the CEO said.

He went on to add that a key reason Swiss Re can continue to absorb catastrophe risks is its scale and diversification, plus the fact it is not as reliant on retrocession as others.

“The reason some people exit this, is that many people in the market are dependent on buying retrocession so reinsuring themselves, and the prices in the retrocession market have gone up more than in the reinsurance markets, so it becomes uneconomical to do that.

“Swiss Re has a very large balance sheet and so we were not dependent on pricing in the retrocession markets to write good business,” he explained.

Mumenthaler then went on to say that Swiss Re is also well-diversified across life and health and the whole mix of business lines, saying, “That allows us to bring capital costs down way more than if you’re a more specialised or niche player in the nat cat area.

“So I think all of these factors combined give us a unique advantage in the nat cat field.”

One other lever than Mumenthaler did not mention, but Swiss Re’s CFO did, is the reinsurers use of alternative capital and insurance-linked securities (ILS).

Swiss Re continues to utilise third-party capital and ILS structures to help it manage a growing portfolio of nat cat risks and has been growing its alternative capital assets under management lately.

Part of this is Swiss Re’s sidecar platform, the core Sector Re co-mingled investor vehicle and the dedicated sidecars of one for large investors such as PGGM (both of which grew recently).

Another lever is Swiss Re’s catastrophe bond program, which as we reported yesterday sees another new issuance in the market at this time.

John Dacey, CFO, Swiss Re, referred to the benefits of these activities in his comments during the analyst call.

“We’ve continued with our Alternative Capital Team to find some attractive options to place some peak risks and we’ve got both the sidecar and cat bonds, with which we’ve been able to modestly increase the retro capacity of the group,” Dacey explained.

He went on to say that one reason the company has been successful in this respect is that “the experience of those involved in our sidecar for 2021 were modestly positive.”

These sidecar investors share in the growth and gross profits of the reinsurer, through an aligned strategy that sees them taking quota shares from Swiss Re’s nat cat book.

Importantly, Dacey added, Swiss Re has not been affected by the dislocation seen in the retro market as a result of its expanding use of alternative capital.

“We’ve seen no reduction in the retro that we’re utilising,” he commented.

Swiss Re’s expertise in nat cat exposures, global scale and diversification, significant balance-sheet capital, alongside strategic use of alternative capital as well, makes for a company that feels it can absorb more cat exposures at this time.

But interestingly, while Swiss Re has been reported as cutting back on capacity deployed to aggregate covers, the company has also been restructuring aggregate coverage, to make it still appealing to underwrite and this has helped it in growing market share at a time when others have slashed that side of their business.

Also read:

Swiss Re expands nat cat premiums 24% at renewals.

Swiss Re targets $200m+ Matterhorn Re aggregate cat bond.

Swiss Re grows ILS AuM to $3.2bn, expands PGGM & Sector sidecars: Interview.

1863 an “investor friendly” ILS fund platform: Bisping, Swiss Re.

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