Swiss Re Insurance-Linked Fund Management

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Swiss Re targets ILS business line expansion: Klugman & Johnson, ILS NYC 2021


Global reinsurance firm Swiss Re is working towards transferring a much broader range of risks to the capital markets in future, as it looks to expand its insurance-linked securities (ILS) activities beyond pure natural catastrophe risks to a more capital management approach, according to Judy Klugman and Ed Johnson, speaking at our ILS NYC 2021 event.

Judy Klugman, Ed Johnson, Swiss Re Capital MarketsJudy Klugman, Global Co-Head of ILS, and Ed Johnson, Head of ILS Sales EMEA & APAC, both from Swiss Re Capital Markets, provided some insight into Swiss Re’s plans for its future insurance-linked security and alternative reinsurance capital activities, during one of Friday’s sessions from the fifth annual Artemis ILS NYC 2021 conference, which this year is being held virtually and online.

Klugman and Johnson laid out some of Swiss Re’s plans to broaden its ILS and alternative reinsurance capital activities, in particular bringing third-party investors deeper into its business by sharing an increasingly wide variety of risks with them.

It’s seen as a part of an evolution of the reinsurance firm’s strategy, in ILS and alternative capital. Having moved from purely buying protection from the capital markets, to an aligned management of risks on behalf of third-party investors, to a future state that sees ILS embedded within Swiss Re’s capital arrangements.

Klugman explained, “Swiss Re has been very mindful about looking at our different lines of businesses, and how to partner with institutional investors.

“Historically, the majority of our activities have really been around helping Swiss Re from a risk management perspective.

“As we think about the balance-sheet of the future for a reinsurer, of Swiss Re, it likely won’t be just stated equity and debt.

“At Swiss Re, it’s very important for us to think about, how we team up, how we work with our investors, for more of a capital relief product. What’s driving a lot of that are long tail lines.”

Klugman noted the recent launch of Swiss Re’s first dedicated managed ILS fund, which has a nat cat focus.

Adding, “There is certainly an over-arching demand from institutional global investors for non-correlating, low correlating assets. At Swiss Re, we’re trying to keep up with that demand. Our recently launched fund is certainly reflective of trying to keep up with that demand.”

Johnson added, “Swiss Re’s obviously a very big diversified reinsurer and we’ve got a lot of other lines of business that we’re starting to think about, how we might look to transact those within the capital markets as well.”

Klugman further explained, “From an evolution standpoint, we’re not going to stop doing nat cat, that’s a wonderful tool for Swiss Re and for our clients, as well as for investors. But now it’s about including additional tools from a capital management perspective.”

Johnson further stated, “As we get into capital management that’s where Swiss Re could see the most benefit from a capital instrument, if we could combine different lines of business into one transaction.

“Swiss Re has done that before. Earlier last year we did a Matterhorn transaction which included both pandemic and natural catastrophe risk, and we did that before in 2012 as well. That’s one indication of the type of instrument that we could do. But it can be challenging to find the right home for that for that type of investment.”

He continued, “We’re thinking about how we can use the relationships we have, the capital which is invested in this marketplace, how can we use that more efficiently on the capital side as well.

“We’re looking across the business and looking at which part of the business consumes lots of capital for Swiss Re, and thinking about how we can construct new products to help Swiss Re manage its capital needs.”

The pair discussed the potential for transfer of risks ranging from pandemics, to longer-tailed casualty lines of business, as well as mortality trend risk.

They also discussed potential challenges, such as the fact many other lines of business are not as uncorrelated as property catastrophe reinsurance, as well as considerations related to collateral management for broader ILS peril expansion.

Suggesting we should look out for Swiss Re ceding a broader range of perils to ILS investors in future, as its strategy continues to evolve and new structures like the 1863 Fund are put to work.

The session, which was broadcast first to event registrants on Friday 5th Feb, can now be viewed below:

Every session from ILS NYC will be made available more broadly via our Artemis Live video channel and audio versions will also be shared via our podcast as well.

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