Innovative hybrid transaction via Matterhorn Re is first of its kind to combine bank financing and ILS

Swiss Re has successfully closed a multi-year stop-loss transaction, with financing ultimately provided by JP Morgan and various institutional investors.

The transaction, which covers underwriting risks across the entire Swiss Re Group, is the first of its kind to combine both bank financing and insurance-linked securities (ILS).

Swiss Re’s Group chief financial officer John Dacey, said: “The innovative partnership is a great example of how the Group considers all sources of capital holistically and aims to further enhance its flexible capital structure.

”With this transaction, the Alternative Capital Partners division delivers another material contribution to Swiss Re’s efficient capital management.” 

The transaction utilises a newly-established segregated account of the existing Matterhorn Re Ltd special purpose insurer vehicle. JP Morgan provides $1 billion financing via a senior loan, while various institutional investors will participate via a $150m investment in junior insurance-linked notes issued by the segregated account.

Protection from severe losses

The deal offers Swiss Re protection from severe underwriting losses for the financial years 2022–2026. Further, the transaction is expected to have a positive benefit for Swiss Re’s ratings and regulatory capital requirements.

The transaction is fully collateralised, with the proceeds to be held in notes issued by the European Bank for Reconstruction and Development.

Philipp Rüede, head of Swiss Re Alternative Capital Partners, said: “Through Alternative Capital Partners’ expertise and strong relationships, we have been able to structure this first-of-its-kind hybrid transaction, bringing together bank financing and insurance-linked securities markets.

”In doing so, we have leveraged the complementary nature of the two sources of capital in a landmark transaction within the reinsurance and ILS markets. It is another example of Swiss Re’s long tradition of innovation in the alternative capital space and underscores the strength of its franchise.”

Alternative Capital Partners was launched in 2019 by combining Swiss Re’s ILS and Retro & Syndication teams.