Insurance-linked securities (ILS)
Since the inception of the market for catastrophe bonds (cat bonds) in 1997, Swiss Re has been at the forefront of developing insurance-linked securities (ILS) both as a sponsor and an underwriter. Cat bonds are a means by which capital markets investors provide natural catastrophe protection to the (re-)insurance industry.
In essence, investors invest funds in a catastrophe bond and if a catastrophe occurs that "triggers" the bond (each bond has a unique trigger mechanism), investors may lose some or all of the capital invested. In the case of an event, the funds are paid to the bond sponsor — an insurer, reinsurer or corporation — to cover losses. In return, the bond sponsors pay interest to investors for this catastrope protection. Cat bonds offer investors an attractive risk/return profile and serve to diversify portfolio risk.
Good risk management
Swiss Re has sponsored a number of cat bonds to hedge some of its peak natural catastrophe exposures, such as hurricanes, windstorms and earthquakes, for its own risk management purposes. Since 1997 Swiss Re has sponsored various innovative transactions — more than a quarter of the cat bonds currently outstanding — including the 2002 PIONEER (press release 18 July 2002), the 2003 Arbor, the 2005 securitisation of in-force life policies and the 2006 Crystal Credit transactions.
"ILS structuring technology offers transaction sponsors a useful risk management tool, and at the same time provides fixed-income investors with an attractive investment opportunity."
Dan Ozizmir, Managing Director, Swiss Re Capital Markets Corp.
Structuring services for clients
Swiss Re Capital Markets (SCRM) acts as underwriter for cat bonds for both Swiss Re and for third-party clients. To date, these issuances have consisted of private placements to qualifying institutional buyers. A recent example of a cat bond deal structured and placed in the market by SRCM is the Phoenix transaction, one of the largest cat bonds to date (as measured by total risk transferred). Phoenix was solely underwritten by SRCM on behalf of Zenkyoren, the National Insurance Federation of Agricultural Cooperatives of Japan.
For further information:
On Swiss Re's ILS capabilities, please contact
Maria Wittman +1 212 317 5633 in New York
Jean Louis Monnier +44 20 7933 4184 in London
On how Swiss Re uses ILS for risk management purposes, please contact Martin Bisping in Zurich
Find more information on insurance-linked activities.
