As alternative capital becomes complementary again, Swiss Re is benefiting: Rüede

Swiss Re is benefiting from a shift in insurance-linked securities (ILS) investor strategy, as ILS and alternative reinsurance capital becomes more complementary again, with these benefits set to keep growing, according to Philipp Rüede, Head of Swiss Re’s Alternative Capital Partners (ACP) unit.

Speaking today during the Swiss Re investor day, Philipp Rüede said that he believes the ILS market is reverting, at least in part, to become a source of capital focused on complementary protection, rather than competition.

“My personal opinion, is that this market is reverting to being more complementary, rather than competing with the reinsurance industry.

“Now, unsurprisingly, we ourselves opted for a strategy that positioned ourselves to be complimentary,” he explained.

Adding that, “Our ultimate goal is to reduce the cost of equity for Swiss Re, a simple goal and the first manner in which we can contribute is, to help us to grow in a controlled manner and in the spirit of exposure management, we would then take a basket of our peak perils and ask investors to participate alongside us in a very transparent and aligned manner.

“The second way we can contribute is by improving the capital the efficiency of Swiss Re.”

Rüede went on to explain some of the growth his unit, Alternative Capital Partners (ACP), has been experiencing.

Since 2018, he said, “We’ve been able to quadruple our assets under management in this space and are receiving positive feedback on our principle of skin in the game.

“We’ve been we’ve been active in this market for 25 years, as a structurer but also as an investor and this has really provided the foundation for this build-out. So we currently have increased our own investment to $1.3 billion as we thought the market was quite attractive recently and last year, we decided to open up this to investors as well, to invest alongside us.”

As we reported first thing this morning, Swiss Re’s third-party investor assets under management in its ACP unit and related ILS funds and sidecars has now reached $3.3 billion.

Rüede also highlighted how the growing alternative capital pool assists Swiss Re in managing its own volatility and contributes to how it positions itself in the market, in terms of risk appetite.

He explained that, “With ACP support, we can continue our long term growth path in nat cat.”

Saying that the support of alternative capital has helped Swiss Re to grow its gross nat cat book, but at the same time adjustments and use of third-party capital have also helped the expected loss of that book to reduce slightly in the last year.

Helping this has been a shift towards more proportional protections, in the use of alternative capital at Swiss Re, Rüede said.

Finally, Rüede highlighted the growth in fee income earned by Swiss Re from the Alternative Capital Partners activities, which we also highlighted in our article earlier today.

Rüede noted that, “We have roughly doubled, every two years, our fee and commission revenues.”

Before going on to explain that Swiss Re now positions well, against its peers, in terms of income earned from alternative capital and ILS activities.

“In 2018, we were below $30 million and far away from our competitors in this space and we have now closed the gap to our peers, and are now in line as of 2022 with our peers.

“For the last 12 months, so until Q3, we are above $170 million and we would expect this this growth to continue, but probably not at the same pace,” Rüede concluded.

Also read: Swiss Re’s alternative capital fees soar to $174m, third-party AUM hits $3.3bn.