Sidecar investors likely relieved on Swiss Re’s Ida loss pick: CFO Dacey

Investors in Swiss Re’s collateralised reinsurance sidecars were likely relieved when they saw the reinsurers loss picks for hurricane Ida and other recent catastrophe events, according to CFO John Dacey.

Speaking during an analyst call this afternoon, Swiss Re’s CFO highlighted the importance of alternative reinsurance capital to the company and the alignment of interests with its investors.

He gave a positive outlook for insurance-linked securities (ILS) activities at the reinsurer as well.

“We obviously access the retro market in many different ways,” Dacey explained.

Explaining that, “The Alternative Capital Partners team, among other things, facilitates the issuance of cat bonds for our clients that want to go that route, and we would expect those activities to continue to be robust as we go into 2022.”

As we reported this morning, Swiss Re’s nine-month results seemed to have positive implications for the reinsurance firm’s investors in its sidecars and insurance-linked securities (ILS) strategies.

The company reported that its catastrophe portfolio remains in the black after September, running at a sub-90 combined ratio, despite the significant loss impact experienced through 2021 so far.

Which suggests that the portfolio of risks it shares on a pro-rata basis with sidecar investors may also have performed relatively well, considering the catastrophe loss experience.

Dacey commented during the analyst call, “We have our own sidecar, one of the largest in the industry, and frankly, I think they were probably a bit relieved when they saw our loss picks for Ida in the ad hoc announcements we put out three weeks ago.”

Swiss Re had announced around $1.27 billion of net catastrophe losses from hurricane Ida and the European flooding in July, earlier this month.

But as we explained this morning, over the nine-months Swiss Re’s overall burden of natural catastrophes and man-made losses is closer to $2.5 billion.

Which makes the sub-90 combined ratio run-rate of the catastrophe reinsurance book all the more impressive.

Dacey continued to explain, “So, I think, our investors recognise that we are sharing the economics of the group with them. We’re not putting them at any particular disadvantage.”

“We underwrite our book for profit,” Dacey said, “So, we think we should be able to continue to grow our own retro capacity in line with well-priced risks coming in the front door.”

Here, a growing sidecar platform, with the multi-investor Sector Re vehicle and also the Viaduct Re relationship with major pension investor PGGM, positions Swiss Re well to manage through a period when retrocession capacity is likely to be more expensive and also less available, after the recent loss experience of some retro specialist underwriters.

“At the moment, we use this to manage some peak risks, but also just to help with the book,” Dacey explained on the sidecar capacity Swiss Re manages.

Which he remans positive on for the future, as a lever that can help Swiss Re continue to expand its book into a firming market.

“I think we’re optimistic over time, about being able to grow our gross underwritings, grow the net, but also continue to grow the support by other people interested in sharing the economics of Swiss Re,” Dacey said.

Swiss Re also set up its first ILS fund, the Core Nat Cat Fund under 1863 Fund Ltd., under Swiss Re Insurance-Linked Investment Management Ltd. (SRILIM) and with an SPI registered named 1863 Re Ltd. over the last year, which alongside its sidecars has given the firm an expanding platform for third-party reinsurance capital management.