Swiss Re has closed a multi-year stop-loss transaction with J.P. Morgan and other institutional investors to cover underwriting risks across the entire Swiss Re Group, in an innovative combination of bank financing and insurance-linked securities (ILS) that is the first of its kind.
Under the transaction, J.P. Morgan will provide US$1 billion financing through a senior loan to the newly-established segregated account of the existing special purpose insurer vehicle, Matterhorn Re.
In addition, various other institutional investors will participate via a US$150 million investment in junior insurance-linked notes issued by the new segregated account.
The fully collateralised transaction will provide Swiss Re with significant alternative capital, therefore protecting the group from severe underwriting losses for the financial years between 2022 and 2026.
In supporting Swiss Re’s growth opportunities in the reinsurance market, the group expects the transaction to also have a positive impact on its ratings and regulatory capital requirements.
Commenting on the transaction, John Dacey, chief financial officer of Swiss Re Group, says: “The innovative partnership is a great example of how the group considers all sources of capital holistically and aims to further enhance its flexible capital structure. With this transaction, the Alternative Capital Partners division delivers another material contribution to Swiss Re’s efficient capital management.”
Philipp Rüede, head of Swiss Re Alternative Capital Partners, adds: “Through Alternative Capital Partners’ expertise and strong relationships, we have been able to structure this first-of-its-kind hybrid transaction, bringing together bank financing and ILS markets. In doing so, we have leveraged the complementary nature of the two sources of capital in a landmark transaction within the reinsurance and ILS markets.”
Launched in 2019, Swiss Re Alternative Capital Partners combines the ILS and retro and syndication teams to support Swiss Re's strategy and franchise.
