Swiss Re Insurance-Linked Fund Management

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


Swiss Re continued to expand its alternative reinsurance capital assets under management across the range of insurance-linked securities (ILS) structures it manages for 2022, with notable successes in growing sidecar commitments for its PGGM-backed vehicle and its multi-investor Sector Re sidecar.

swiss-re-building-imageArtemis spoke with Judy Klugman, Global Head of ILS Sales (based in New York), and Ed Johnson, Head of ILS Sales EMEA & APAC (based in London), both from Swiss Re Capital Markets, to find out where growth in Swiss Re’s alternative capital assets under management is coming from and their views on market opportunities.

A year ago, Swiss Re lifted its alternative reinsurance capital and ILS assets under management to $2.8 billion, with its recently launched 1863 Fund one area of the business that was expanding at the time.

For 2022, Swiss Re saw continued success with the 1863 ILS Fund, securing the recently reported commitment from new ILS market entrant and pension investor Alecta.

But that wasn’t the only vehicle new capital flowed to for 2022, as Swiss Re also had fundraising success across its sidecar structures as well.

Judy Klugman, Swiss Re Capital MarketsDuring our interview, Klugman explained, “Underpinning the strength of our diversified offerings, we saw positive growth momentum across all our major products at the end of 2021.

“In particular, our Sector sidecar continued to grow, we expanded our relationship with PGGM, and SRILIM secured a substantial investment of USD 250m from Swedish pension fund Alecta in its 1863 fund platform entering into a new strategic partnership.”

The Sector Re, multi-investor reinsurance sidecar structure has been core to Swiss Re’s use of alternative capital for some years now, while the relationship with Dutch pension investment giant PGGM is a more recent addition.

Sector Re grew to around $1.9 billion by the third-quarter of 2021 and has been Swiss Re’s main sidecar vehicle since 2007.

The Viaduct Re sidecar relationship with PGGM began in 2019 and was expanded to over $500 million in size at the mid-year point of 2020.

Looking ahead, Klugman expects further opportunities will emerge for Swiss Re’s ILS and alternative capital platform this year.

“We see opportunities across all our product offerings, across client types and geographies. Most of our recent growth has come from our existing relationships, however, we continue to build connections with a wide range of global institutional investors and expect this trend to continue throughout 2022,” she explained.

Ed Johnson, Swiss Re Capital MarketsJohnson told us that Swiss Re has noted changing priorities among some ILS investors, “Investors’ key motivation remains to seek returns which are lowly correlated to other financial markets.

“However, we are seeing a shift away from the highest-risk strategies towards those that are aligned reinsurer partnerships as well as liquid cat bond strategies.”

He sees an opportunity for Swiss Re to capitalise on the shake-up in the ILS investor base and their changing priorities, saying, “As a leading reinsurer, Swiss Re has a strong brand and reputation which makes us a natural partner for those investors seeking largely uncorrelated returns with a partner whose interests are aligned.”

In fact, Swiss Re is considering offering access to cat bond returns through an investment structure, something that to-date has been an internally managed strategy.

Johnson said, “Swiss Re has managed an internal cat bond portfolio for a long time and has built up a very strong track record. We are sometimes asked if investors could participate alongside Swiss Re in that cat bond portfolio.

“It’s not something we offer today but we are exploring it. Our goal would not be to raise assets simply because there is growth in that sector but to offer potential partners another way to participate alongside Swiss Re.”

Klugman went on to highlight the important role of third-party capital at Swiss Re, with its sidecars and catastrophe bonds both providing complementary retrocessional protection to the company, as well as enabling it to partner with the capital markets.

“The Sector sidecar has provided Swiss Re with quota share capacity for its core nat cat reinsurance portfolio for almost 15 years now. The sidecar provides Swiss Re with indemnity protection which is a distinct difference from its PCS based Matterhorn cat bond transactions,” Klugman said.

Adding that, “It is always useful to have a variety of hedging instruments in the toolbox.

“However with that being said, the sidecar can only be marketed to those investors that have the ability to invest directly in a security and that is where the 1863 fund comes into play. We found over the years that many investors were interested in Sector but could only invest in a fund structure.

“That is why Swiss Re Insurance-Linked Investment Management Ltd (SRILIM) was founded in 2020 which is the investment manager of the 1863 fund platform. The fund structure is a new and easy way to access Swiss Re’s natural catastrophe business.”

Johnson also highlighted the potential for a major global reinsurance player, like Swiss Re, to expand investor access to a far broader range of risks than are currently available through the property catastrophe focused ILS structures it manages today.

“Swiss Re continues to explore the use of ILS for capital management purposes in addition to its historical role as a risk management tool. Transactions envisioned could be broader in scope than just pure natural catastrophe or life risks. However, more work needs to be done to find the intersection where a suitable structure exists for both Swiss Re and investors,” Johnson explained.

Klugman agreed, saying, “The next frontier will be cyber and we continue to work on possible solutions that we hope will come to market in the next few years.”

With now $3.2 billion of alternative capital and ILS assets under management, Swiss Re is steadily climbing our Insurance-Linked Securities Investment Managers & Funds Directory.

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