1863 an “investor friendly” ILS fund platform: Bisping, Swiss Re

Global reinsurance firm Swiss Re developed its 1863 insurance-linked securities (ILS) fund platform to be “investor friendly” and has attempted to address some of the “structural inefficiencies” often seen in ILS products, according to Martin Bisping, CEO of the reinsurers’ Swiss Re Insurance-Linked Investment Management Ltd (SRILIM) unit.

Just last week, Swiss Re announced that its 1863 ILS fund platform is the recipient of a US $250 million investment from the largest Swedish pension Alecta.

Bisping told us in an interview that this is the largest single institutional allocation that the 1863 ILS fund platform has received to-date, a sign that these ILS investment management activities are ramping up for Swiss Re.

Swiss Re Insurance-Linked Investment Management Ltd (SRILIM) was founded in 2020 as a fully-owned subsidiary of the reinsurer and it acts as the investment manager for the 1863 fund platform, providing investors an opportunity to access the reinsurers’ natural catastrophe business.

We asked Bisping to discuss some of the innovative ways the company is trying to meet investor needs in the ILS space, as well as its plans for growing the 1863 ILS fund platform in the future.

Bisping explained that when building the 1863 fund platform, Swiss Re kept efficiency in mind and wanted to make it as simple a route to access catastrophe reinsurance linked returns as possible.

“In brief, our aim is to provide a more investor friendly way to participate in the reinsurance markets.

“To overcome some of the structural inefficiencies commonly seen in ILS products, we introduced innovative product features, such as the immediate deployment of investor capital, the mitigation of trapped capital, underwriting leverage, and a transparent fee structure.

“Also, we introduced regular dealing dates for fund shares to provide investors with more flexibility with regards to subscriptions and redemptions,” Bisping told us.

The 1863 ILS fund platform adopts a balanced risk profile and has been tailored to the needs of large institutional investors, providing “easy access to Swiss Re’s core natural catastrophe book,” Bisping said.

Importantly, this means investors are participating in the same risks Swiss Re holds on its balance-sheet, which Bisping said provides strong alignment of interests.

Another factor that makes the 1863 ILS fund offering appealing, is the fact it shares in one of the largest reinsurance books in the world, Swiss Re’s.

But it’s not sharing everything, not even on the catastrophe risk side of things and Swiss Re has purposefully made it a peak peril focused strategy.

“The fund investments are only deployed to the so-called peak natural catastrophe markets,” Bisping told us. “These tend to have an exposure which can be less easily diversified within the global reinsurance market, meaning that the business is typically priced at higher margin compared to other reinsurance business. Consequently, the fund takes a proportional share in Swiss Re’s reinsurance portfolios with the highest profit margin.”

So, with US $250 million of new investment capital to deploy, thanks to the investment made by Swedish pension Alecta, Bisping told us that because of the direct access to Swiss Re’s balance-sheet risks there is no wait to get the capital deployed for the investor.

Discussing how the 1863 fund platform would deploy the capital it has raised, Bisping explained, “Since the fund invests in Swiss Re’s portfolio, which already exists and is continuously renewed by Swiss Re, any fund capital inflows can be accommodated by simply increasing the fund’s participation in the portfolio accordingly.

“This ensures that investors’ capital is always optimally invested without creating any undesired ramp-up effects or execution risks associated with composing a high-quality portfolio.”

That, along with the structural aspects mentioned earlier, are all serving to make the 1863 ILS fund platform an attractive option for investors looking to allocate to the sector.

Bisping said, “We have seen strong interest from investors since the platform’s launch just over a year ago, with the investment of Alecta being the biggest to date.”

So far the 1863 ILS fund platform remains natural catastrophe focused, but given the breadth of its own book of reinsurance, it makes sense Swiss Re is exploring options to offer other classes of risk to investors as well.

Bisping commented that, “We are currently exploring the option of expanding into additional lines of business, always focusing on our main goal of optimizing the portfolio based on our investors’ needs.”

But that won’t be at the expense of the quality of the ILS products it offers, as Bisping believes the core offering has to remain investor friendly and easy for investors to engage with.

“SRILIM and the 1863 fund platform are both still young companies with great growth potential. Our short-term goal is to maintain the quality of our products and services for investors at an excellent level,” Bisping said.

But looking ahead, Bisping has ambitions to develop a leading ILS investment management business at Swiss Re, saying that, “In the medium term, we aim to establish SRILIM as one of the leading ILS asset managers in the market and position the 1863 fund platform as the go-to address for institutional ILS investors.”

The timing of Alecta’s investment into Swiss Re’s ILS fund and the pensions entry to reinsurance investing is positive, Bisping believes, as, “Reinsurance pricing has been rising for five consecutive years, making it a favourable time to invest in the area. In addition, the currently muted financial market outlook makes natural catastrophe risks an even more attractive investment opportunity due to its strong diversification potential.”

The last year, despite 2021 becoming a really significant catastrophe loss year for the reinsurance industry, has evidenced the 1863 strategy is working and started the ILS fund platform off on strong footing after its first full-year of operations.

Bisping closed by explaining, “Swiss Re’s core natural catastrophe book has been able to effectively absorb the heightened loss activity we have seen in 2021 thanks to Swiss Re’s continued focus on disciplined underwriting and portfolio quality. This underlines the quality and earnings power of this business.

“As a consequence, despite 2021 marking the fourth costliest year on record in terms of total industry losses due to natural catastrophes, the 1863 fund platform was able to deliver a robust return to its partners – underlining our conviction that it offers investors a very strong value proposition.”

Read all of our interviews with ILS market and reinsurance sector professionals here.