Swiss Re ILS deal maps the future of ILS: Lohmann
New types of ILS deals designed to help re/insurers manage capital, such as Swiss Re’s innovative multi-year stop-loss transaction completed with JP Morgan, have the potential to expand the potential universe of ILS into new territory—and potential strong growth.
That is according to Dirk Lohmann (pictured), chairman, Schroders Capital ILS, speaking just months after Swiss Re closed its second deal of this nature—$700 million protection against severe underwriting losses, again structured as a multi-year stop-loss deal in partnership with JP Morgan, which uses a combination of bank financing and insurance-linked securities (ILS).
Swiss Re said the deal, which protects it through the years of 2023–2027, will allow it to grow its business in what it called favourable market conditions. Issued using special purpose vehicle Matterhorn Re, Swiss Re added that it will have a positive impact on its regulatory and ratings capital requirements.
This is one of the things likely to be discussed in a special session at the Zurich event titled “Unlock capital via third parties to find solutions for new and existing risks”. A panel of experts, including Lohmann, will analyse recent levels of returns by reinsurers and investors versus expectations, debate the impact on capital caused by inflation, climate change and an increasing demand for insurance products and debate recent changes in capital regulations and requirements such as IFRS17.
Lohmann described the transactions as innovative in their nature because they are focused largely on managing capital. If the use of ILS instruments can play an important role in the capital structure of re/insurers, the potential growth for the ILS markets is enormous, he said.
“This is an area that could have a lot of potential for growth in the industry. Reinsurance, whether it’s catastrophe reinsurance or other forms of reinsurance, is a capital surrogate. What I like about these transactions is that they’re focused on the remote end of the capital spectrum with regard to solvency requirements. People are looking at developing structures which are attractive for ILS investors—they give more remote tail risk, but not only in a catastrophe form.
