Structured deal growth prompts Swiss Re to seek retro

A focus on tailored deals may require Swiss Re to seek protection either through retrocession or insurance-linked securities (ILS), the firm suggested during a presentation at the Monte Carlo Rendez-Vous.

In the renewals during the first half of the year, Swiss Re grew its premium volume by 18 percent driven by structured and tailored deals, which jumped by 76 percent.

“If we started to pull in too much of one type of risk we felt comfortable with but not on the accumulation, then we would go to capital markets and we will use a retrocession,” said Kurt Karl, Swiss Re chief economist. “It depends on how comfortable you feel with building up a little bit of excess in certain lines of risk.”

In its latest sigma report, Swiss Re claimed that there is a growing demand for customised and more strategically-motivated re/insurance solutions.

Most demand is coming from the US, followed by Europe, due to the nature of global companies and history, but there is also some activity in China and South East Asia, said Philipp Rüede, global head of P&C structured solutions.

“Demand is rising because the market is stressful, and stress tends to lend itself to customised solutions because you can get a more effective cover for your exact need,” Karl said.

Strategic reinsurance programmes are designed to provide more efficient risk protection and can help insurers optimise their capital structure in order to improve capital returns and minimise capital costs, according to the sigma report. They can also increase the efficiency of re/insurance by combining multiple risks and/or interdependent triggers.

Swiss Re cited the example of a power utility purchasing combined insurance protection against drought and high oil prices. Payouts would be triggered when rainfall levels moved below a trigger level, with higher payments when the price of oil was high. The index-based insurance solution protects the utility against earnings volatility.