Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Swiss Re returns to cat bond sponsorship with $100m Matterhorn Re deal


Reinsurance giant Swiss Re has returned to the catastrophe bond market after a number of years’ hiatus, to sponsor a new $100 million Matterhorn Re Ltd. (Series 2019-1) transaction to tap the capital markets to support its retrocession needs, we have learned.

matterhornSwiss Re has not been a regular sponsor of catastrophe bonds for some years now, with the last transaction we have the firm listed as sponsoring in our cat bond Deal Directory being the Vita Capital VI Limited (Series 2015-1) mortality ILS deal from late 2015, prior to which the reinsurer sponsored the Mythen Re Ltd. (Series 2013-1) cat bond.

So it’s almost six years since Swiss Re has been a sponsor of a natural catastrophe bond, as the firm likely found other sources of retrocession more compelling than the issuance of often time-consuming and costly cat bonds.

It’s also possible that Swiss Re elected not to sponsor so many cat bonds given the ILS market has been awash in peak perils, while at the same time pricing has been very low.

Hence it’s market dynamics, in terms of the availability of retrocession and pricing of alternatives, as well as the opportunity to cede more risk to the capital markets at better pricing in 2019, that have likely resulted in Swiss Re’s return to the cat bond market as a sponsor this year.

For this issuance Swiss Re will be using a new cat bond vehicle for the first time.

Matterhorn Re Ltd. was registered as a Bermuda domiciled special purpose insurer and segregated accounts company in late 2018 and for this first issuance under the vehicle, a single tranche of Series 2019-1 notes will be issued and sold to ILS investors, with the resulting proceeds set to collateralize a retrocessional reinsurance agreement between Matterhorn Re and Swiss Re.

The notes are being termed SR2019-1 by the issuer, we understand, to denote Swiss Re as the sponsor of this transaction.

Matterhorn Re has been marketed as a $100 million transaction to begin, with investor interest currently being sought for the deal and its resulting notes.

We understand the $100 million of Matterhorn Re Series 2019-1 notes will provide Swiss Re with a source of collateralized retro reinsurance against certain losses from northeast U.S. named storms, on an industry loss trigger and per-occurrence basis.

The covered area includes the U.S. states of Connecticut, Delaware, the District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, Virginia, and West Virginia, we’re told.

The Matterhorn Re notes could be triggered when a PCS reported industry loss for a named storm affecting the northeastern U.S. states rises above an index attachment point of $17.5 billion, covering losses up to an index exhaustion point at $25 billion, we’re told. That’s equivalent to an attachment probability of 2.38% in the first year.

This Matterhorn Re cat bond will have a tenure of roughly 18 months, so providing Swiss Re with retrocessional reinsurance protection across two U.S. hurricane seasons, with maturity slated for November 20th 2020.

The Matterhorn Re notes are being issued at a discount to par, so akin to a zero coupon arrangement.

The notes have a one-year modelled expected loss of 1.92% and across the entire 18 month term it would be 3.81%.

We understand that the pricing guidance pegs the notes at between 90.5% to 91.5% of par value, which could be considered similar to an 8.5% to 9.5% coupon range for them.

Seeing one of the world’s largest reinsurance firms return to the catastrophe bond market in 2019 is extremely encouraging, as Swiss Re clearly feels there is value in accessing the capital markets in this way and at this time.

Market forces have likely driven this renewed interest in sponsoring a cat bond for Swiss Re, either as the resulting coverage looks set to prove cost-effective and can broaden its retro counterparties, or the firm sees an opportunity to get investor support for a segment of its property catastrophe risk that ILS investors are likely to find appealing.

Whatever the motivations may be, the fact Swiss Re is back in the cat bond market in 2019 is further testimony to the robustness of the catastrophe bond structure and the attractive nature of alternative capital as source of reinsurance protection and for ceding risks to.

We understand that this Matterhorn Re Ltd. (Series 2019-1) catastrophe bond issuance from Swiss Re is likely to be completed within the next fortnight. We’ll update you should any further information come to light.

You can read all about this and every other catastrophe bond in the Artemis Deal Directory.


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