Global reinsurance giant Swiss Re has secured its second multi-year stop-loss transaction with funding led by J.P. Morgan, providing the reinsurer with USD 700 million in underwriting protection as it targets profitable growth in an attractive reinsurance market.
The financing builds upon an innovative hybrid transaction concluded with J.P. Morgan in April 2022, which was the first of its kind to bring together bank financing and insurance-linked securities (ILS).
The previous transaction saw J.P. Morgan provide USD 1 billion in financing through a senior loan, while a range of institutional investors participated via a USD 150 million investment in junior insurance-linked notes. It provided the reinsurer with protection from severe underwriting losses for the financial years 2022 to 2026.
This new stop-loss deal provides protection for severe underwriting losses across the Swiss Re Group for the financial years 2023 to 2027.
The transaction enables the reinsurer to grow its business in favourable market conditions, and is expected to have a positive benefit for the firm’s regulatory and ratings capital requirements.
Swiss Re leveraged a newly established segregated account of the existing Matterhorn Re Ltd. special purpose insurer vehicle (SPI), with the account financed via an initial USD 700 million facility supported by J.P. Morgan and its institutional investors. It is possible to increase to USD 1 billion in size if needed in the future.
The company notes that this transaction is fully collateralised, with the proceeds to be held in notes issued by the European Bank for Reconstruction and Development, which has solid and stable ratings from Moody’s, S&P, and Fitch.
Philipp Rüede, Head of Swiss Re Alternative Capital Partners, commented: “This transaction with J.P. Morgan effectively provides Swiss Re with cost- efficient capital that can be deployed in the current attractive market. This deal also represents another important step on Swiss Re’s Alternative Capital Partners’ journey, where we are increasingly using alternative capital to address our wider capital management needs, with the objective of lowering Swiss Re’s cost of equity.”
The reinsurer’s Alternative Capital Partners unit is comprised of its sell-side ILS capabilities and its retrocession management, enabling it to utilise a broad range of third-party capital as it grows its business.