Swiss Re Insurance-Linked Fund Management

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Swiss Re: Covid not a big event for sidecar, aims to expand ILS activity


Global reinsurance firm Swiss Re expects that while it seems that some losses from the Covid-19 pandemic could fall to its quota share sidecar investors, the amount won’t be significant.

swiss-re-building-imageSpeaking this morning during the companies first-half earnings call, CFO of Swiss Re John Dacey said that the pandemic won’t prove to be a big event for investors backing its quota share sidecar structures.

Discussing some of the reinsurance firms retrocession arrangements, Dacey said that while the sidecar structures take a basket of risks from the companies underwriting portfolio on a proportional basis, it’s unlikely that much in the way of Covid-19 losses will flow to those vehicles.

Here, Dacey is certainly referring to the more than $1 billion Sector Re collateralised reinsurance sidecar structure that Swiss Re manages third-party capital in, but possibly also to the now $500 million single-investor sidecar Viaduct Re that is backed by Dutch pension investor PGGM.

The sidecars (at least Sector) share in losses across much of the property book at Swiss Re, we understand, so there was always going to be a risk of some element of the claims burden from Covid-19 falling to the structures.

Dacey explained that the potential for pandemic related losses to flow to insurance-linked securities (ILS) structures is one reason the market hasn’t seen a significant inflow of new capital from ILS investors in recent months.

He further explained that Swiss Re’s Alternative Capital Partners unit, which manages its relationships with investors and its work in ILS or collateralised reinsurance structures, has been in communication with many investors in the ILS space and that, where the Covid-19 pandemic and potential for losses has been concerned, they feel they have been treated correctly and fairly.

Discussing Swiss Re’s increasing use of alternative capital from third-party investors, through the above mentioned sidecar structures Sector Re and Viaduct Re, as well as through the increasing volumes of catastrophe bonds Swiss Re has issued under its Matterhorn Re series, Dacey said this is an area of growth for the reinsurer.

“We’ve been more active in this space,” Dacey said.

Adding that, “We see the price environment for nat cat broadly has improved and is improving, so our ability to work with primary clients and write more business is clearly there.

“To manage that and some of the peak risks, such as North American windstorms, we’ve brought in additional clients to work with us and take some of that risk,” he said, referring to the third-party investor base Swiss Re is working with.

Dacey continued, “We think we’ve done a great gob of aligning ourselves with these investors and the response has been pleasingly strong.”

“We expect to grow this business and grow the portion of our book that is shared with investors,” he said.

Read more on Swiss Re’s first-half results here.

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