I really believe in the (ILS) system: Swiss Re CEO Mumenthaler

Speaking with Artemis in a recent interview, Christian Mumenthaler, the CEO of global reinsurer Swiss Re explained that he believes in the insurance-linked securities (ILS) system and sees this alternative form of reinsurance capital as occupying a critical position in the marketplace.

Mumenthaler joined us for an Artemis Live video interview just in advance of the recent Monte Carlo Rendez-Vous and discussed his passion for the alternative capital market and ILS, an area of the Swiss Re business that used to be directly under his purview.

Mumenthaler said, “I really believe in the system, and I’m very proud about our alternative capital unit. It has been very successful to build up significant capacity.”

He explained the importance of capacity being long-term and sticky, highlighting the success of Swiss Re’s sidecar platform over recent years, which has become a core capital partnership for the reinsurance company.

But, he noted that even here capital can ebb and flow, saying that, “We have to always balance how much business do we get in, and how much do we put out, and so there are periods where we don’t have enough investors and periods where we have too many, and we need to balance this out to create something sustainable.

“Over time, we cannot afford to suddenly have no capacity, so we need multi-year capacity and commitments.

“But overall, I definitely see the capital market playing an important role.”

He went on to reference some of the challenges that the ILS market has faced in recent years, but said that he feels the sector is now on much stronger footing.

“There was a bit of exuberance, the last few years and exaggerations and some I think mistakes were done. But the market is back to a pretty rational state where I think capital market actors can make good returns,” Mumenthaler said.

Adding, “Every capital market that has developed in a particular instrument, it goes through similar cycles. There was a cycle, I remember in the beginning when I was in charge of the unit. We couldn’t find any capital, it was so hard to, you know, train people, convince people and then obviously, we have gone into a phase where there was a lot of capital and then too much.

“There was this pressure from the low interest rate environment. Lots of people came in, every pension fund wanted to allocate a certain amount and because there was not enough channels to allocate, I think it became unprofessional to a certain degree, and then people have burned their fingers.

“So some people retreated. But, as usual that means prices go back up. That means that the more professional players, they come back in the earliest, those who understand the risk the best and feel confident about it, which means that we’re back to, I think, a healthy market and a growing market.”

Mumenthaler also highlighted that the way investors are aligning themselves has evolved a little, after the challenges faced.

“I think the collaboration has also a bit changed. So, a lot of these investors are now coming behind the big reinsurers, recognising that they have an advantage by knowing their clients, getting them good deals, having their own interest, etc. So I think the whole scene has shifted a little bit,” he said.

Continuing, “But I continue to be very bullish on this and I think capital markets have a very important role to play in this overall, for the world.”

He expanded to say, “I think we will need capital markets in particular for the very big peak risks where reinsurance cannot be 100% efficient any more, because of diversification issues.

“I think over time, if we can avoid some of the exuberance and the missteps, it’s going to continue to grow, and it’s going to be a successful market, because it really has a place in the economy and in society.”

Watch the full video for many more insights from the Swiss Re CEO.

The full video interview with Swiss Re CEO Christian Mumenthaler is embedded below and can also be viewed, along with previous Artemis Live video interviews, on our dedicated video page.

You can also listen in audio to all of our interviews by subscribing to the Artemis Live podcast here.

All of our Artemis Live video interviews have a focus on reinsurance, ILS and the efficiency of risk transfer and can be accessed here.

You can also listen in audio to these interviews by subscribing to the Artemis Live podcast here.

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