Reflecting on the successful return of his company to the catastrophe bond market in 2019, Christian Mumenthaler, the CEO of reinsurance firm Swiss Re, explained that the reinsurer has always shown a commitment to the ILS market.
Swiss Re returned to the catastrophe bond market as a sponsor in 2019 with the $250 million Matterhorn Re Ltd. (Series 2019-1) U.S. hurricane exposed transaction.
It was the first time Swiss Re had sponsored a catastrophe following a number of year’s hiatus, as it returned with new vehicle Matterhorn Re tap the capital markets in support of its retrocessional reinsurance needs.
We recently interviewed the Swiss Re CEO in the run up to the 2019 Monte Carlo Rendezvous to explore the reinsurance firm’s return to insurance-linked securities (ILS) in more depth.
Mumenthaler began by explaining that the recent cat bond deal was well-received.
“Indeed, Matterhorn Re was very well received by the market as we haven’t sponsored a cat bond for quite some time,” he said. “Investor’s feedback was so strong that we were able to increase the deal size and still price it at the tight end of guidance.”
He also explained that, “Matterhorn Re fits very well into the bigger mix of our hedging portfolio.”
While Swiss Re had been away from catastrophe bonds as a sponsor for a few years, prior to the Matterhorn deal Swiss Re sponsored an extreme mortality cat bond in 2015 and its last natural catastrophe bond back in 2013, the company remains focused on accessing the capital markets in the most efficient way possible, as and when required.
Of course, Swiss Re has a long running collateralised reinsurance sidecar series of deals named Sector Re, which it renews annually and flexes the size of to match its need for retro capital and the costs in the ILS market.
At the same time the company arranges cat bonds and other ILS deals for ceding companies and also distributes them to investors though its Swiss Re Capital Markets unit.
Mumenthaler stressed this, saying to us, “It is also fair to say that our commitment to the cat bond market was always strong. More recently as an arranger of cat bonds for clients, but also on our own behalf.”
“Since the start of alternative capital, we have been a pioneer in ILS and built a strong track record in this market. We have always been using third-party capital,” he continued.
We asked Mumenthaler about the strategy at Swiss Re, when it comes to leveraging capacity from third-party investors and how it fits within the reinsurers overall business model.
He replied, “Our risk transformation capabilities allow us to use a large variety of instruments (from sidecar, cat bond, collateralised 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.
“This year we have grown our natural catastrophe book and also ceded a bit more to capital market investors to keep our portfolio balanced and diversified.”
Mumenthaler remains positive on the outlook for Swiss Re and the reinsurance market in general, seeing plenty of opportunities for innovation and growth.
Technological developments at Swiss Re can drive significant opportunity for the firm, as well as benefits for the rest of society by narrowing so-called protection gaps and expanding coverage.
However, the reinsurers still views the pricing across the reinsurance market as too low, resulting in a sector that does not meet its cost-of-capital, Mumenthaler commented.
Which could all lead to Swiss Re itself having an ongoing need for third-party capital support, as it looks to grow further and deliver innovative client solutions. While at the same time the reinsurer is sure to remain an important facilitator of ILS and cat bond transactions for clients as well.
“We expect to continue to use third-party capital when it makes sense,” Mumenthaler said.
We hope to see further cat bond issues either from Swiss Re, or supported by it, in the months to come.