Climate change uncertainty & perception a challenge for ILS: Minter, Swiss Re ACP

As the reinsurance and insurance-linked securities (ILS) market begins to look towards year-end issuance, renewals and into 2025, Chris Minter, the new Head of Swiss Re’s Alternative Capital Partners (ACP) division, told Artemis that one of the biggest challenges for ILS is the uncertainty and perception of the influence climate change may have on insured losses.

Minter joined Swiss Re’s Alternative Capital Partners (ACP) division recently, taking over the leadership role, giving him responsibility across the reinsurance firm’s third-party capital market activities, from investment management, to sidecars and structuring or bookrunning ILS and catastrophe bonds.

Speaking with Artemis around the Monte Carlo Reinsurance Rendez-Vous, Minter said that nothing changes with his tenure and that the reinsurance giant remains focused on its role as a reinsurance partner for capital markets investors and clients seeking to access the capital markets.

“We are less focused on any one renewal period, but we seek to deliver attractive and sustainable returns for our investor partners over the longer term,” Minter explained.

Adding that, “For investors seeking to allocate to the insurance-linked securities (ILS) market we believe it is important to partner with a firm that has both a differentiated risk knowledge and modelling expertise, and also has a capital-efficient platform that can give investors broad access to reinsurance and cat bond market risks.”

Speaking about the continued success of Swiss Re’s approach to third-party capital management, Minter said that the company has been seeing increasing interest from investors, with many attracted to its aligned offering.

“Since the launch of our ILS investment management business, we have seen strong demand both for our catastrophe bonds and for sidecar structures,” Minter said. “These are complementary ways to access risk pools, and investors appreciate our ability to provide efficient access via both structures.”

He continued to say, “Catastrophe bonds and other types of ILS are becoming more mainstream, as a broader investor base recognises their ability to provide diversification through less-correlated risk diversification.

“In the context of current hurricane season forecasts, natural catastrophe events and third-party model changes, we have seen that investors are showing a preference for managers with deep risk and underwriting expertise.”

Minter said that, at Swiss Re, the expectation is that conditions remain favourable for investments into natural catastrophe reinsurance risks.

“We expect to see a continuation of the discipline that we’ve seen in the reinsurance market in the last two years,” he told us.

We asked Minter for his views as to what might present challenges to the insurance-linked securities (ILS) market over the next year and he highlighted climate change as one area that could come more into focus.

He explained, “As concerns around inflation fade, the biggest challenges the ILS market faces relate to uncertainty and perceptions of how climate change and extreme weather events impact insured losses.

“Insured losses continue to trend upwards in 2024 with USD 60 billion of losses, as highlighted in the first half of 2024, according to the most recent Swiss Re Sigma report.”

Adding, “But climate change is not the sole driver; exposure growth, particularly in catastrophe-prone areas, and claims inflation are big drivers.”

Minter closed this part of our interview by saying that, “Modelling natural catastrophe risks globally in a consistent and transparent way is essential for fair and rational pricing and to ensure the best outcomes for investors.”