Swiss Re Insurance-Linked Fund Management

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Swiss Re targets $275m of hurricane & mortality cat bond cover


Reinsurance giant Swiss Re is back with a second catastrophe bond for 2020, seeking up to $275 million of retrocessional protection with a Matterhorn Re Ltd. (Series 2020-2) transaction that will cover it against certain losses from U.S. named storms and hurricanes, as well as extreme mortality exposures.

matterhornThis will be the third catastrophe bond that Swiss Re has sponsored under its Matterhorn Re vehicle and already its second issuance in 2020.

Third-party sources of reinsurance capital are set to continue playing an expanding role for Swiss Re, as the company looks to increase its capital markets backed sources of retrocession with this new Matterhorn Re 2020-2 transaction.

The reinsurance firm is also looking to expand the coverage it benefits from, with this latest Matterhorn Re cat bond set to offer it up $275 million of coverage against losses from U.S. named storms and also extreme mortality risks.

It’s particularly noteworthy, as this is the first catastrophe bond to cover extreme mortality risks that we’ve listed in our comprehensive Deal Directory since 2015.

The cost of mortality reinsurance and retrocession coverage in the traditional life reinsurance market had become particularly competitive thanks to major global reinsurers leveraging mortality as a diversifier, which slowed issuance of mortality cat bonds in recent years to a halt as the returns just weren’t meeting ILS investor needs.

Swiss Re’s return to mortality cat bonds is perhaps not so much a signal that the capital markets and insurance-linked securities (ILS) are a cheaper source of protection for it, rather a sign that this major player recognises the importance of diversifying its sources of capital and the value it can generate by ceding risks to ILS funds and investors, to source capital that is supportive of its underwriting.

For its second Matterhorn Re cat bond of this year, Swiss Re’s special purpose insurance vehicle will issue and sell two tranches of Series 2020-2 notes to investors, with the proceeds used to collateralise underlying retro reinsurance agreements between Matterhorn Re Ltd. and Swiss Re.

The transaction is targeting between $200 million and $275 million of limit protection across the two tranches to be issued.

The first tranche, Series 2020-2 Class A, targets between $75 million and $100 million of protection and will cover certain losses from both northeast U.S. named storms and also extreme mortality events in Australia, Canada and the UK.

The Class A tranche will feature two triggers for each section of protection, with a weighted PCS industry loss index trigger used for the northeast U.S. named storm and hurricane risks, and a weighted mortality index trigger used for the mortality risks.

The second tranche, Series 2020-2 Class B, targets between $125 million and $175 million of protection for Swiss Re and will cover losses from U.S. named storms across the U.S. coastline from Texas to Maine, we understand.

The Class B tranche will use a weighted PCS industry loss index trigger.

Both tranches will provide per-occurrence protection against losses from the named storm and mortality risks

We’re told that the up to $100 million Class A tranche of notes will have an initial expected loss of 1.41% base for the northeast U.S. named storm risks and 0.98% for the Australian, Canadian and UK mortality risks.

The Class A notes were at first offered to investors with initial price guidance of 4.75% to 5.5%, but we’re told this coupon pricing has now been fixed towards the lower-end at 5%.

The Class B notes are said to have an expected loss at the base case of 2.76% base, so are a much riskier layer of retro reinsurance coverage.

The Class B tranche of notes were launched to investors with an initial price guidance range of 6.5% to 7%, sources said. But this has now been narrowed and has fallen to below the lower-end of initial guidance at 6.25% to 6.5%.

It’s encouraging to see Swiss Re continuing to build on its renewed appetite for capital markets transactions and ILS backed retro reinsurance, with the catastrophe bond market beginning to play an increasingly important role for one of the world’s largest reinsurers.

It’s particularly encouraging to see a mortality cat bond transaction from the company, as it could signal a greater use of third-party capital to support a growing mortality risk appetite at Swiss Re.

Alongside the recent expansion of Swiss Re’s Sector Re sidecar, this increased and expanding use of the catastrophe bond market is another way the firm is pulling more third-party capital into its business model, at a time when it is expanding its front-end underwriting appetite for risks.

You can read all about this latest Matterhorn Re Ltd. (Series 2020-1) cat bond transaction and every other catastrophe bond ever issued in the Artemis Deal Directory.

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