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Swiss Re bulks up Sector Re sidecar to $1bn

Swiss Re has boosted its Sector Re sidecar to roughly $1bn in 2019, growing the vehicle by two-thirds from $600mn in 2018, the carrier disclosed during an investor day presentation.

This came as the firm said it planned to pursue a growth strategy in the catastrophe market with support from retro partners.

It said it ceded $900mn more exposure into the alternative reinsurance market in 2019, with its sidecar the largest component of its retro programme.

It also did its first non-life cat bond issuance since 2013 earlier this year, raising $250mn from Matterhorn Re.

Its sidecar growth now puts Sector Re as the largest quota share vehicle ahead of Everest Re's $940mn Mt Logan, though smaller than the market-facing DaVinci Re, according to data from sister publication Trading Risk.

The increased retro support has helped Swiss Re grow its gross catastrophe portfolio in the past year, with net retained risks rising less. The carrier projected cat premiums would rise from around $1.25bn to closer to $1.5bn in 2020.

But in an investor day presentation, CEO Christian Mumenthaler told analysts that the carrier would not shift away from its traditional tactic of taking bigger net positions on the cat market than many of its peers.

“That's based on the hypothesis that in good years you outperform the rest; in bad nat cat years, you underperform, but on average, you save the retro premium,” he explained.

“We're not looking to lever out the way some of the competitors have,” he continued, adding that the firm believed this would help it maintain an alignment of interests with investors.

Swiss Re sees an opportunity to target investors who have already invested with ILS fund managers as it builds out Sector Re, Mumenthaler noted.

Mumenthaler added that Swiss Re sees increased use of ILS markets as a pitch to reinsurance buyers. 

“Instead of [our clients] doing a lot of this alternative capital thing, I can see more and more of them saying, 'Why don't you do it, all right? I'll give you a bigger share, but then you share some of it in the back end so I don't have to care about all of that’.”

One of the reasons Swiss Re is planning to grow its retro protections to enable it to seek overall expansion is that its clients often have unbalanced portfolios, so the firm cannot simply pursue growth in non-peak perils. This means it has to keep growing – and capping off with retro support – peak US exposures.

But Mumenthaler said the reinsurer would alter its tactics if rates came in lower than expected or if retro rates rose much higher, although he noted that much of its support is in quota share form.

“We are not dependent on this market to be able to continue to grow our business,” added group CFO John Dacey.

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