Reinsurance giant Swiss Re has partnered with J.P. Morgan and institutional investors to complete an innovative, first of its kind hybrid transaction which combines bank financing and insurance-linked securities (ILS), securing $1.15 billion in protection for severe underwriting-related losses.
For this innovative multi-year stop-loss transaction, J.P. Morgan provides $1 billion in financing through a senior loan, while a range of institutional investors will participate via a $150 million investment in junior insurance-linked notes.
Both the loan and ILS notes are effectively a catastrophe bond issuance from Matterhorn Re, under a newly created segregated account named Argon. The ILS notes were a Series 2022-1 Class A tranche of notes.
The underlying reinsurance structure for this transaction is a multi-year whole account stop-loss of Swiss Re’s group wide underwriting results, with a trigger based on the economic result of each individual financial year across the five-year term. So, for this transaction, Swiss Re has secured protection for underwriting risks across the entire group, all lines and perils, as the trigger is based on the company’s economic results.
Swiss Re notes that with this deal it has protection from severe underwriting losses for the financial years 2022 – 2026, supporting the reinsurer’s growth opportunities in an attractive reinsurance market. It’s also expected that this deal will have a positive benefit for Swiss Re’s ratings and regulatory capital requirements.
John Dacey, Swiss Re’s Group Chief Financial Officer (CFO), commented: “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.”
This innovative transaction from Swiss Re is fully collateralised, with the proceeds to be held in notes issued by the European Bank for Reconstruction and Development, which has Aaa/AAA/AAA ratings from Moody’s, S&P, and Fitch, respectively.
Swiss Re’s Head of Alternative Capital Partners, Philipp Rüede, added: “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 insurance-linked securities 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.
“It is another example of Swiss Re’s long tradition of innovation in the alternative capital space and underscores the strength of its franchise.”