ILS investor appetite expected to recover after 2021 lull: Swiss Re C-Suite

The senior leadership of global reinsurance company Swiss Re is bullish that insurance-linked securities (ILS) investor appetite will recover after a recent lull caused by losses and uncertainty, they explained at the firm’s investor day yesterday.

Thierry Léger, Group Chief Underwriting Officer (CUO) of Swiss Re, told the assembled investors and analysts why there’s been a bit of a slowdown in growth of certain areas of the ILS market and in alternative reinsurance capital.

“My view is that, right now, because of some of the losses we’ve seen, also a bit because of COVID and everything, the whole environment, there is a bit of capacity stuck, because of the collaterals, they have to be set. I think some of it is stuck there,” Léger explained.

Adding that, “I think the environment also has reduced the confidence of some investors into this line of business. So, I think that the flattish growth on alternative capital in ‘21 might be a bit of an indicator of that generally more cautious outlook from alternative capital.”

Léger went on to say that he doesn’t believe this represents a turnaround in investor appetite for insurance and reinsurance linked investments.

Rather, “I think, they will seek to grow over time.”

“But it is true, in the recent past, we have seen a bit less appetite, and as I said already last year, that gives again an even better competitive edge to our offering,” Léger said.

Also commenting on alternative capital and ILS from the Swiss Re C-Suite was Moses Ojeisekhoba, CEO, Reinsurance.

Ojeisekhoba further explained to the Swiss Re investor day audience, “If you track capital coming in over the last 30 years, you always have these periods where it sort of plateaus and then it goes back up.

“It’s for a very simple reason; exposure continues to grow significantly and, to the extent exposure continues to grow, we also want capital to come in, to match up with the exposure, and part of it will be alternative capital.

“I think ‘21 is maybe a lull period, but over the long-term, we’d expect capital to come in.”

Later in the day of presentations, the CFO of Swiss Re, John Dacey, also discussed Swiss Re’s own activities in ILS and alternative capital, referencing the Alternative Capital Partners team.

Discussing alternative sources of reinsurance capital, Dacey said, “While it serves primarily reinsurance today, is fundamental to how we think about our capital management.”

On the recent slowing of investor appetite for certain areas of reinsurance, Dacey said, “I don’t think we’re concerned, in part because we’re participating. We’re convinced the alternative capital is here to stay, the benefits in terms of capital diversification are enormous.

“This is a good place to find uncorrelated returns to financial markets more broadly, so we think this will continue.”

Dacey also noted that Swiss Re’s own activities are expected to grow in this area.

On the ACP team he said, “The expectation is a continued important contribution to the group from that time.”

On the way Swiss Re uses alternative capital he highlighted that this is expanding, saying, “Today, it’s focused on US hurricane, but we’ll now be able to share some risks from other parts of the portfolio. We’ve started to share risks from the life and health portfolio, which might become a peak risk for us in future.”

Commenting on the earnings Swiss Re makes from ILS activities, including its own investment returns from the internally managed catastrophe bond portfolio, Dacey implied Swiss Re has an advantage due to the data and insights it has into the reinsurance market.

He also highlighted the impressive fee income expansion, which we wrote about in an article yesterday.

“We’ve been able to build this up, to over $80m in 2021 and we think this can continue to grow, with the expansions we intend for the team,” Dacey said.

Also read: Swiss Re scales alternative capital & ILS towards $100m annual fee income.