Swiss Re Insurance-Linked Fund Management

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Swiss Re using third-party capital to grow while managing risk: Mike Mitchell


Reinsurance giant Swiss Re has made increasing use of third-party sources of capital this year, as pricing rose and its appetite for natural catastrophe risks increased.

mike-mitchell-swiss-reBut third-party capital provides an important lever for Swiss Re, allowing it to grow into certain peak zone risks, while also managing its risk appetite, Mike Mitchell, the reinsurers’ Head of Property & Specialty Underwriting explained to us in a recent interview.

“With cat price levels improving, we are leveraging our highly diversified portfolio to grow our cat business,” Mitchell explained.

He said that Swiss Re’s overall strategy and underwriting approach has not changed, adding that, “Cat business fits well into our highly diversified book, so we retain the bulk of the business that we write.”

But, due to the growth achieved in some of the peak catastrophe zones Mitchell said that, “We will increase our use of hedging so that we can offer large cat capacity efficiently across our client base.”

Further explaining that, “Swiss Re retains the vast majority of risks on its own balance sheet ensuring strong alignment with third-party capital partners.

“Making use of a broad range of third-party capital and retrocession instruments enables Swiss Re to grow its natural catastrophe book while proactively managing risk appetite.”

He went on to explain that Swiss Re’s use of third-party capital, which as we explained recently has increased this year, is actually nothing new.

The company was one of the first to engage in catastrophe bonds and insurance-linked securities (ILS) transactions, both as sponsor and facilitator of capital markets backed reinsurance transactions.

Mitchell explained, “Swiss Re has consistently been a user of ILS and other third-party capital, but possibly more quietly than others. Since the start of alternative capital, we have been a pioneer in ILS and built a strong track record in this market.”

But it’s not just a service to its clients, the use of ILS and third-party capital also helps its reinsurance business model.

“Our risk transformation capabilities allow us to use a large variety of instruments (from sidecar, cat bond and collateralized reinsurance to traditional retrocession) to support our natural catastrophe portfolio and to meet the demand for natural catastrophe protection from our clients, while keeping our exposure within our risk appetite,” Mitchell commented.

“At the same time, we successfully built strong and strategic relationships with investors which are keen to participate in Swiss Re’s natural catastrophe portfolio and to support future growth.”

Further growth into natural catastrophe business is likely for Swiss Re, as long as pricing remains conducive, as it is a core component of its portfolio.

As a result, further use of third-party capital and ILS structures to support this growing catastrophe exposure is also likely, as Swiss Re leverages the capital markets appetite for reinsurance risks to help manage its risk appetite and exposures.

Which has been proven out with the companies issuance of catastrophe bonds, including a new Matterhorn Re cat bond transaction scheduled for January, as well as the recent upsizing of its collateralised reinsurance sidecar vehicle Sector Re.

Swiss Re also recently said that this trend for growth and diversification within its portfolio of natural catastrophe risks would continue, with investor-backed alternative sources of capital likely to play an increasingly important and supportive role.

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