Swiss Re crafts innovative $1bn+ stop-loss with JP Morgan and ILS investors

Global reinsurer Swiss Re has partnered with JP Morgan and institutional investors to complete an innovative multi-year stop-loss transaction covering underwriting risks across its entire group using a newly-formed segregated account of Matterhorn Re, a special purpose insurer vehicle in Bermuda.

The hybrid deal is regarded as the first of its kind to combine both bank financing and insurance-linked securities (ILS).

JP Morgan provides $1 billion financing via a senior loan, while various institutional investors will participate via a $150 million investment in junior insurance-linked notes issued by the segregated account.

The deal gives Swiss Re protection from severe underwriting losses for the financial years 2022–2026, thereby supporting growth opportunities in an attractive reinsurance market, it said. Further, the transaction is expected to have a positive benefit for Swiss Re's ratings and regulatory capital requirements.

The transaction 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 (Moody’s/S&P/Fitch, all stable) ratings.

John Dacey (pictured), Swiss Re’s group chief financial officer, said: "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."

Philipp Rüede, head of Swiss Re Alternative Capital Partners, said: "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."

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