Interconnected risks and new capital increase relevance of structured solutions, Swiss Re says

As insurers navigate interconnected risks and alternative capital sources, Swiss Re sees a growing role for structured reinsurance in addressing complex client needs. Kaspar Müller explains what is driving the shift.

Key points:
Capital options widen for insurers
Growth moves up the agenda
Legacy shaping renewal talks

A changing risk landscape and expanding capital options are creating opportunities for structured reinsurance, as insurers look beyond traditional risk transfer to address more complex balance sheet and strategic objectives.

That’s the view of Kaspar Müller, chief underwriting officer for structured solutions at Swiss Re, who says the shift reflects a broader change in the questions insurers are asking about capital. For many clients, he said, the concern is less about whether sufficient capital is available and more about whether that capital is being used effectively.

“I am convinced there is going to be more of a combination between alternative sources of capital and structured solutions, ultimately to the benefit of the client, giving them more optionality in how they strengthen or grow their balance sheet,” Müller told Baden-Baden Today. Click here to watch the full interview.

“The question around capital, which is highly relevant from a structured perspective, is today for most clients less about, ‘Do I have enough capital?’ and more about, ‘Is the capital I have working hard enough, and can I deploy that capital much more effectively?’” he said.

“If you did a word cloud, the word ‘growth’ would have become larger over the last 12 months.”

Supporting growth

The underlying client objectives have not changed dramatically. Earnings protection remains central, alongside capital deployment and flexibility to pursue growth. What has changed is the complexity around those objectives, particularly as clients deal with more interconnected risks and accumulation pressures.

That is also feeding into conversations around growth. “If you did a word cloud, the word ‘growth’ would have become larger over the last 12 months,” Müller said. “How do I finance that growth from a client perspective? And what growth am I looking for?”

“If we had a solution that resolved the growth of our clients, that would be wonderful. That is not the business we are in, but we are here to support them with capital for that growth,” he said.

Beyond risk transfer

Traditional reinsurance remains highly effective where the objective is straightforward risk transfer, Müller said. Structured solutions become more relevant when clients are trying to solve several balance sheet or strategic issues at the same time.

“Structured solutions really come into play when it is more than straightforward risk transfer, and more than a straightforward one-year contract looking at a specific peril,” he said.

That can include legacy portfolios, multi-year objectives or situations where correlations across lines of business need to be considered together.

“When there are discussions around how to secure multiple objectives at the same time, and perhaps take correlations across lines of business or over time more into account, that is where structured solutions can really bring more value than a straightforward traditional solution.”

Changing market conditions do not necessarily make structured solutions more or less attractive. Müller said traditional and structured reinsurance remain exposed to the same market dynamics, although “structured solutions may be less volatile” particularly in capital management.

“What we do see is clients thinking much more sophisticatedly about how to leverage reinsurance,” he said. “That is where structured often comes into play if a client is looking to solve more than pure risk transfer.”

Müller is careful, however, not to equate greater complexity with a need for more bespoke solutions. “Being bespoke for the sake of being bespoke is not going to help anyone,” he said.

“If the business challenge the client is trying to resolve is sufficiently complex — and given the world we are operating in today, that complexity has increased — then, yes, there is more reason to have bespoke solutions.”

The choice still comes back to what the client is trying to achieve and whether a traditional or structured solution best fits that objective.

Legacy picks up

Legacy is another area where demand has strengthened. “If I look at last year and early this year, the demand was relatively weak. At the end of the first quarter, that really gained traction,” Müller said.

Clients are increasingly reviewing whether exposures sit where they want them and whether legal entities remain structured appropriately.

“That is where legacy transactions come in,” he said.

As discussions move towards Baden-Baden and the January 1 renewals, price and capacity will remain important. But Müller expects growth, strategic transactions and legacy to occupy more of the conversation.

“It should be a bit less of a pure price or capacity conversation,” he said. “And more about how can we bring that creativity into the discussion?”

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