Property & Casualty structured solutions

More of our clients are optimising their balance sheets and their earnings power from a corporate and enterprise perspective. Smart combinations of business unit protections and corporate risk management or enterprise risk management solutions allow insurers and corporations to combine multiple risks and/or interdependent triggers.

Typical products: Structured Quota Shares, Tailored Cat covers, structured retrospective covers, legacy solutions.

These are large programmes where the sheer size of risks is challenging. They usually involve panels of reinsurers and, increasingly, combine traditional programmes with alternative capital like ILS. In some cases, pay-outs are based on indices rather than actual losses. We use these structures to enhance the insurability of difficult-to-insure risks, such as weather-related, commodity and non-damage business interruption risks.

Typical products: Funded Cat covers, spread loss covers, Aggregate covers, Cascading Covers, Top & Drop Structured Covers.

Increasingly, reinsurance is used in corporate capital management programmes. The goals of such programmes include enhancing capital returns and reducing capital costs. You can achieve this through, for example, non-life proportional covers, retrospective solutions and structured solvency relief covers.

Typical products: Structured Quota Shares, Enhanced Quota Shares, Combinations of Quota Share & LPTs/ADCs, Structured Solvency Covers.

M&A are transformational situations which bring significant changes to funding and risk transfer needs. There is heightened investor scrutiny of portfolio quality, as well as execution risk on successfully integrating an acquired entity. We can use reinsurance solutions to help strengthen or relieve pressure on insurers’ balance sheets and earnings statements – either as a preparatory step before a sale or in the aftermath of an acquisition.

Typical products: Structured Quota Shares, Enhanced Quota Shares, Combinations of Quota Share & LPTs/ADC's, Structured Solvency Covers.

Most reinsurance solutions play a role in supporting an insurer's growth plans, including expansion into new markets or the launch of new products. The growth initiatives require upfront funding or capital relief. However, the reinsurance solutions package can also involve broader support, for example in managing market and regulatory risk or other expertise and facilities such as carrier platforms.

Typical products: Structured Quota Shares.

Swiss Re novation enables our partners to transfer reinsurance risks off their balance sheets and free up trapped capital, reduce volatility, increase operational efficiency and focus on growth opportunities.

Our wealth of reinsurance expertise, financial strength and sustainable long-term strategy are all crucial components in structuring successful Novation solutions.

The insurer cedes liabilities for all emerging unpaid losses associated with a previously incurred insurance liability to the reinsurer. The transfer may include known and unknown claims reserves. The transferred reserve risk usually involves the timing of claims payments and their amounts up to the policy limit. The original policy issuer remains responsible to policy holders should the reinsurer fail to honour its obligations.

The insurer typically pays a premium that reflects the net present value of reserves it has set aside to cover the transferred liability and the risk margin, respectively capital benefit. Main motivations for the insurer can include ring-fenced legacy risks to improve market valuations, the reduction of capital requirements (regulatory and /or rating agency) for reserve risk and freeing up resources tied to the administration and analytics of non-core operations.

The reinsurer indemnifies the insurer for a portion of a loss on a previously incurred liability that exceeds an agreed retention level (excess of loss reinsurance). There is typically no cession of the liabilities or the associated reserves, at least for short tail lines of business. As a result, ADCs do not reduce net reserves to the same extent as LPTs. Instead, the reinsurer agrees to reimburse the insurer if claims on the designated insurance portfolio exceed the attachment point up to a defined limit.

An insurer cedes liabilities usually through a bulk transfer mechanism (such as a Part VII transfer mechanism) that ensures that the original policy issuer no longer remains responsible to policy holders, but rather the new insurer. The transfer usually takes the form of an LPT without limitation and associated claims handling and operations are handled by the new insurer.

A medium-sized insurer with a balanced book of business (life and non-life) had a history of volatile results in non-life lines. The company was negatively impacted by turmoil in the underlying economies and was struggling to meet profitability targets. The insurer sought to reduce volatility of the non-life.

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Acquisition-led growth was part of our client’s short-to-medium-term strategy. Any acquisition was to be funded through a combination of debt and existing excess capital – avoiding the dilution of stock.

Our client wanted to increase capital more than the targeted capital adequacy ratio (from a rating and regulatory perspective). It needed a flexible solution with minimal upfront costs, one that could be accessed at short notice and without distracting management resources during the due diligence of M&A activity. The cost-efficient outcome increased capital through a quota share.

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An insurer with a well-established business in both Life & Health and Property & Casualty was subject to the Standard Formula under Solvency II in the transition period to prepare for regulatory approval. Capital was needed at the group level to finance new ventures. The insurer wanted to grow its life business. By reducing the capital requirement for its general insurance portfolio, it wanted to free up capital to be able to allocate more resources to different areas such as the life book. Swiss Re developed a unique retrospective and prospective structure enabling seamless coverage across all years of retrospective and prospective business.

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