This July Swiss Re New Markets celebrates its first year of operation. Valerie Denney interviews Willy Hersberger, head of corporate marketing, asking in particular for his views on the recent development of reinsurance.
The Swiss Re Group established the division last July to centralise the group's alternative risk transfer and risk financing resources for larger corporations and insurers.
With its headquarters in Zurich and major offices in New York and London, Swiss Re New Markets (SRNM) has a staff of 800 professionals with background in investment banking and corporate finance as well as (re)insurance areas. The range of professional skills enables the division to offer risk and financial management solutions that integrate capital markets, financial and conventional (re)insurance.
Willy Hersberger holds a degree in business administration from the St Gall University. He joined Swiss Re's corporate planning department in 1971, transferring to the aviation department two years later. After a year of training in the London market, he took charge of Swiss Re's aviation reinsurance portfolio in the UK, Latin America and the Middle East.
From 1982 to 1986 he was with the engineering department, where he was responsible for business emanating from France, Italy, Africa, the Middle East and the Indian subcontinent.
In 1986 he moved to the marketing division for Germany where he was appointed head in 1989. He also took over marketing responsibility for central and eastern Europe. In July 1997, he became head of the corporate marketing unit at SRNM.
Mr Hersberger is the author of the new SRNM brochure Corporate risk financing - the emergence of a new market and the initiator of the Swiss Re New Markets Risk Adjusted Capital (RAC) quiz which can be found on the internet on the following address: http://www.newmarkets.swissre. com/rac.html
VD: How has the reinsurance market changed since you first started working in it?
WH: In the early seventies, the reinsurance business had a far larger number of serious players. Many of them have disappeared in the meantime, often through consolidation with stronger, better capitalised companies. It was very much a "people business," with a strong continuity ethic that meant market share could change only at a very small pace. Risk adjusted capital and portfolio engineering were practically unheard of.
Today, capital efficiency is probably the single most important success driver, and a new market catering for the risk financing needs of large corporations is gradually crystallising. It is a market in which integrated risk financing solutions are shaped by blending traditional and non-traditional insurance products, banking instruments, and capital market solutions. It is still a people business but clients are far more willing to shift their business if they cannot obtain real value from insurers and reinsurers - or any other provider for that matter.
VD: We all know that risk managers have become increasingly sophisticated in recent years. What impact has this had on the reinsurance market?
WH: Because of historical uncertainties, corporations are increasingly demanding first class security. As a division of an AAA-rated reinsurer, you cannot expect SRNM to object to this too strenuously. Corporate risk managers are presently widening their scope of interest to include risks that cannot be handled by insurance, such as financial exposures that can impede profitability and impact shareholder value. They are becoming aware that retaining risk means exposing capital. Capital which has to achieve acceptable returns. They want to enhance the leverage of their own risk-bearing capital by structuring integrated risk transfer and risk financing solutions.
The majority of large corporations have established their own captive insurance companies to deal with part or all of their risks. These companies simultaneously approach direct insurers and the reinsurers with their risk financing needs.
As a consequence, reinsurers have moved away from their old image as "the insurer's insurer." They are now in the process of developing new products - many with a heavy investment banking and financial emphasis - to deal with the broader risk environment faced by today's companies.
VD: What do non-traditional products offer that traditional ones cannot?
WH: Non-traditional products are no "magic potion" against all forms of risks: corporations face many large risks that are uninsurable and will remain so. However, non-traditional products can substantially mitigate the impact of even uninsurable risks on the annual (or quarterly) profit and loss accounts or the asset base. The result: decreased volatility, enhanced shareholder value, and a more confident market position.
VD: What non-traditional products does SRNM currently offer? How are these products expected to develop in the future?
WH: SRNM's idea is not to replace traditional risk transfer generally by non-traditional (alternative) products. Rather, we try to blend traditional and non-traditional risk financing modules into integrated packages that optimise the corporations' capital efficiency in respect of their retained risk basket.
We are convinced that large corporations will increasingly require their risk financing partners to furnish integrated packages that perform way beyond the traditionally insurable risk area. Included in these packages will be not only those risks that can be hedged using options or futures (such as currency exchange rate or commodity price fluctuations) but also genuine entrepreneurial risks (though for the latter the package may offer no more than a reduction of volatility).
Valerie Denney is co-editor of this publication.