Swiss Re Securitization of U.S. Life Policies

January 24, 2005

Swiss Re CEO John Coomber is perhaps the industry’s strongest advocate for turning to the capital markets to securitize risks. So it’s no surprise when the world’s second largest reinsurer announced that it has successfully completed its first securitization of future profits from a portfolio of U.S. life insurance policies with a $245 million bond issue.

Swiss Re sees a method for increasing capital efficiency by transferring insurance risk to the capital markets. “Through this transaction, Swiss Re is delivering on our strategic objective of accelerating the balance sheet through risk securitisation,” Coomber stated.

The issue, which closed Jan.20, was taken up by a number of institutional investors. Swiss Re said: “It consists of three separate tranches of securities, paying an average pre-tax coupon of 6.96 percent with an expected maturity ranging between six and 11 years.

“The asset backing the securitisation is the expected future profits from five blocks of life insurance business previously acquired by Swiss Re through Admin ReSM transactions. Investors’ return is subject to various factors that reflect the risks of the underlying business, including mortality, persistency and investment risks.

The reinsurer noted that by “transforming insurance risk into a tradeable security Swiss Re is able to turn intangible assets into cash, which otherwise would only emerge over time. The transfer of risk to the capital markets allows Swiss Re to more effectively use its capital. As a result, shareholders’ return on the risks flowing through Swiss Re’s balance sheet is improved.”

John Fitzpatrick, Head of Swiss Re’s Life & Health Business Group commented: “This innovative transaction enables us to manage our capital more effectively. Our ambition is to create a flexible financing system to support our strategy of growing our Admin ReSM business.”

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