Swiss Re Insurance-Linked Fund Management

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Swiss Re gets $700m collateralised stop-loss cover via J.P. Morgan


Global reinsurance giant Swiss Re has secured another $700 million of alternative capital protection for severe underwriting losses, through another collateralised stop-loss arrangement using its Matterhorn Re SPI, with the funding led by investment bank J.P. Morgan.

Swiss Re Matterhorn Re catastrophe bondsDesigned to reduce Swiss Re’s own cost of equity and provide efficient funding for underwriting opportunities, the company said the new stop-loss extends its “ability to pursue growth opportunities in an attractive reinsurance market.”

This second stop-loss arrangement builds on the April 2022 transaction that saw Swiss Re securing a landmark hybrid bank financing and insurance-linked securities (ILS) transaction, that saw catastrophe bond notes issued alongside a loan arrangement with J.P. Morgan, to secure $1.15 billion of all-lines of business stop-loss financing and protection from the capital markets.

The new arrangement is multi-year in nature, providing $700 million of collateralised stop-loss financing with funding led by J.P. Morgan.

It will extend the underwriting protection Swiss Re has from these arrangements, delivering cover to support the reinsurance firm’s pursuit of profitable growth.

Philipp Rüede, Head of Swiss Re Alternative Capital Partners, explained “This transaction with J.P. Morgan effectively provides Swiss Re with cost- efficient capital that can be deployed in the current attractive market.

“This deal also represents another important step on Swiss Re’s Alternative Capital Partners’ journey, where we are increasingly using alternative capital to address our wider capital management needs, with the objective of lowering Swiss Re’s cost of equity.”

The stop-loss protection will run across the financial years 2023–2027, covering severe underwriting losses.

The arrangement will support Swiss Re in expanding its business further in favourable market conditions, while also delivering a positive benefit for its regulatory and ratings capital requirements.

Swiss Re has used its Matterhorn Re Ltd. special purpose insurer (SPI) again for this deal, with a newly established segregated account used.

However, this time it’s not an insurance-linked securities (ILS) transaction. Rather, the segregated account is financed via an initial US $700 million facility supported by J.P. Morgan and its institutional investor base.

J.P. Morgan has provided US $700 million in financing via a senior loan, that runs through the newly established Matterhorn Re segregated account. The segregated account is named Argon II.

It has been structured with the potential to increase to US $1 billion in size, should Swiss Re decide to extend it.

Fully collateralised, the proceeds will be held in notes issued by the European Bank for Reconstruction and Development, which has Aaa/AAA/AAA (Moody’s/S&P/Fitch, all stable) ratings, Swiss Re explained this morning.

With this new arrangement, Swiss Re is further building out its capabilities to capitalise on the current reinsurance market opportunity, through capital markets techniques and the sourcing of efficient institutional capital.

While not an insurance-linked securities (ILS) arrangement, these transactions demonstrate another structured approach to bringing investor capital more directly into a reinsurance business, delivering similar benefits to ILS, of protection and capital efficiency.

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