innovating together examples of innovative risk solutions34...its innovative, highly customised...

Innovating together Examples of Innovative Risk Solutions

In this brochure, Swiss Re Corporate Solutions presents examples of innovative risk transfer solutions.

They showcase our applied experience in a variety of industries and demonstrate how Swiss Re Corporate Solutions can partner with you in new and groundbreaking ways to address the toughest risks across the globe.Do you have an innovation story in the making? Let’s get creative. Let’s think big. Let’s do something that hasn’t been done before.

We are smarter together.

Swiss Re Corporate Solutions – Innovating Together 5

Table of Contents

Financial Interest Cover 06Multi-year, Multi-line Cover 08Combined Parametric Wind and Earthquake Cover 09Insur8TM 10GrowthsuranceTM 11Subsidy Insurance 12Parametric 2.0 – QUAKE 13Wind/PowerPrice Correlation Swap 14Non Physical Damage Business Interruption 16Efficient Fronting 17Our Team 18


Financial Interest Cover

BackgroundA luxury goods company generates substantial sales in earthquake-prone regions. In the event of a catastrophic earthquake, group sales could drop significantly and the following economic recovery would likely be slow. In the aftermath of such an event, the group may sustain an extended period of depressed sales in key markets.

Our innovative risk solutionWe created a parametrized earthquake cover that pays out pre-agreed amounts based on the level of an earthquake shake intensity index.

The insurance product covers a very broad set of scenarios, such as denial-of-access, non-physical damage business interruption (NDBI) or contingent business interruption (CBI). The cover allows for a quick settlement, efficient liquidity management and effective communication /crisis management also when compared to the company’s key competitors.

Our challenges Fitting the cover to the client’s specific situation in terms of

exposure and loss scenarios required an in-depth analysis and various discussions with stakeholders.

Limited data which made it difficult to fit a loss curve.

How else can this be applied?Parametric insurance covers can protect clients against a wide spectrum of risks including natural catastrophes, like earthquakes, hurricanes, and to some extent flood; weather risks, such as extreme temperatures or atypical precipitation patterns, often in combination with energy prices; and volumetric exposures in agriculture, such as crop yield, rainfall and temperatures. Parametric insurance can provide cover for supply chain risks for suppliers that are located in catastrophe prone areas (such as Japan or California), and more recently, for airline cancellation risks and low occupancy rates in hotels due to terrorism, pandemics or other disruptions to public travel.

8 Swiss Re Corporate Solutions – Innovating Together

Multi-year, Multi-line Cover

BackgroundAs part of a tender process, a global goods manufacturer invited the entire Swiss insurance market to a presentation on the company’s major lines of business. Swiss Re Corporate Solutions had no historical involvement on any of the primary layers, nor did we have any of the needed lead capabilities (risk engineering, claims handling, worldwide policy issuance etc.) to quote for a lead. Even so, an insurer approached us about a joint offering combining their lead capabilities with Swiss Re Corporate Solutions industry know-how and capacity. We received the green light from both the client and the broker for a joint proposal for a MYML cover.

Our innovative risk solutionSwiss Re Corporate Solutions designed a MYML cover combining eight different programmes with the support of a joint team of underwriters.Key to our success was that our partner could act as the exclusive service provider while we were a full co-leader enhancing the proposal from a capacity and industry know-how point of view.

How else can this be applied?Clients who are motivated to combine various lines of businesses into a non-cancellable multi-year structure should consider such a solution. Swiss Re Corporate Solutions can deploy considerable capacity on a three-to-five-year basis depending on risk quality, the accumulation of our exposures in the specific geography, and the price adequacy for a multi-year commitment. Partnering with a co-insurer-if necessary-allows us to offer primary lead programmes for various jurisdictions.

Our challenges Critical issues to overcome included the technical complexity of

combining eight different programmes into one insurance policy. Evaluating the cost of catastrophe risk transfer over a multi-year

term. Collaborating with another market player willing to support our

structure and pricing.


Combined Parametric Wind and Earthquake Cover

BackgroundFollowing our marketing activities during an industry conference, we were approached by a broker whose client was concerned about getting cover for a delay of an ongoing retrofitting project on one of his properties. The client is a risk cautious independent owner of a hotel group in the Caribbean Islands whose main concern were property damage and business interruption losses due to natural catastrophes during the construction phase.

Our innovative risk solutionSwiss Re Corporate Solutions designed a Parametric Wind and Earthquake cover to address the client’s main concern which are damage of physical assets and consequently loss of profit. The solution provides two limits, one for wind and one for earthquakes. Payment occurs if a certain hurricane category or Earth Magnitude is exceeded. Payments increase with higher hurricane and higher Magnitude categories aligned with the exposure and anticipated losses of the client.

Our challenges All our solutions are completely customized to address each

client’s concerns individually. Hence, we were able to offer multiple options for two natural

catastrophe perils to the client within a short period of time to close the transaction prior to hurricane season.

How else can this be applied?Such parametric solutions can be applied not only to the hospitality industry but also to various other industries such as real estate, financial services, tourism, transportation, manufacturing, mining etc. Many industries share similar concerns such as physical damage of property, loss of income due to devastation of a broad area after a natural catastrophe event. Government interventions, inability of using roads, ports and airports, and as a result decrease of customer penetration or sales after an event. Also, parametric covers are complementary to traditional insurance and can help reduce a customer’s retention by serving as a deductible in-fill or providing cover for under- or uninsured assets such as transmission & distribution lines, tennis courts, landscaping etc.


Insur8TM

BackgroundHong Kong is located in a highly typhoon (tropical cyclone) exposed area. As a result, the Hong Kong Observatory have established a robust warning system, that utilises 5 warning signals. As per government guidelines, when a typhoon warning signal level 8 or above is issued, offices will be shut down and companies will not require their employees to report for work. In addition, trains, light rail, MTR and bus services will be impacted and suspended.

Typhoon warning signals level 8 and above can directly or indirectly disrupt many businesses in Hong Kong due to suspension or closure of business operations. However, existing property and business interruption insurance products only provide indemnity when there is actual physical damage to the insured. This leaves gaps between the insurance coverage and actual economic loss sustained, which is ultimately borne by the insured.

Since 1980 there have been 51 recorded signal 8+ cyclones affecting Hong Kong.

Our innovative risk solution We developed Insur8TM, the first-ever typhoon warning insurance solution for businesses operating in Hong Kong. This new solution indemnifies local businesses against loss of earnings and additional operating costs stemming from a typhoon warning signal level 8 or above.

How else can this be applied?Non-physical damage business interruption cover can be used to cover ‘black swan’ events that can negatively impact earnings and weaken balance sheets. The opportunity spans across many industries, with most recent activity seen in airlines, rail transport and hospitality services, such as hotels and could cover losses arising from regulatory shutdown, cyber-attack, communicable disease, wide area damage, etc.

Our challenges To create the optimal solution, we needed to perform extensive

modelling and link the payout triggers to the estimated loss of income of the insureds.


GrowthsuranceTM with an Agri-chemicals Company in China

BackgroundAn agri-chemicals manufacturing company wanted to integrate a client loyalty programme that would benefit their customers, the local farmers in China. If farmers’ crops are damaged by a severe storm, they benefit from a free-of-charge replacement for their already purchased products.

Our innovative risk solutionParametric typhoon coverage is used to indemnify loss of revenues from providing free replacement products under the loyalty scheme. The maximum indemnity limit is based on wind speed severity and typhoon track within a certain geographic area (in this case, three provinces). The cost of the typhoon-linked insurance is incorporated into the sales price of the product.

The effectiveness of such a program was proven following a recent typhoon whereby the company saw an increase in sales, despite a higher sales price compared to similar products from competitors. Such a loyalty scheme also improves the resilience of their farmer clientele, which ultimately helps to protect revenue stream for the company arising from the impacted location.

How else can this be applied?Linking parametric insurance triggers to a client’s marketing campaign allows them to differentiate their products and services to drive business growth. This helps to re-position insurance not just as a risk management tool but also as a growth enabler by turning risks into opportunities.

Our challenges Application of insurance risk triggers to a marketing campaign. It took time to obtain the buy in from the marketing department. Additional time was required to build a marketing campaign and

train the distributors on how to sell this new product. Using local data and local typhoon triggers was critical to

success given the insured’s clientele.


Subsidy Insurance

BackgroundA European food processing company is constructing a renewable energy project that is eligible for government subsidies on condition that the project is operational by a specified date. The lenders of the project requested insurance coverage to protect against the potential loss of the subsidies due to delays.

Our innovative risk solutionA parametric solution was suitable in this case as it could be tailored to the particularities of the risk scenarios and its potential consequences and establish transaction efficiency. Swiss Re Corporate Solutions developed a parametric insurance with a single / date trigger and a fixed payment which is based on the net present value of the expected subsidy values. In addition to the traditional Construction All Risk / Erection All Risk insurance coverage (CAR/EAR), the solution covers the loss of the subsidy in case of an indemnifiable delay.

How else can this be applied?This solution can also be applied for natural catastrophes, weather risks and energy prices.

Our challenges Interests of all parties needed to be aligned. Agreeing on the value of the fixed payout.


Parametric 2.0 – QUAKE

BackgroundDue to the detrimental and long-lasting impacts earthquakes and other natural catastrophes have on the budget of a corporation or public entity, liquidity challenges are created following such an event. There are often substantial delays in receiving reimbursement or disaster aid from various sources, including traditional insurance policies, federal government, or post-event funding sources. Following a disaster, the first 90 days are most critical in helping an organization recover.

Our innovative risk solutionFor this reason, Swiss Re Corporate Solutions developed QUAKE, a parametric, rapid-payout insurance product. It is designed to complement traditional property or standalone earthquake insurance purchased by a corporation or public entity and to protect the insured from indirect economic losses, such as loss of revenue and additional expenses, and direct losses incurred from currently uninsured or underinsured risks. It can either be structured as a single-index trigger or a multi-index trigger product. QUAKE is a buyer-specific product, customized to the buyer’s portfolio of assets and geographic exposure.

How else can this be applied? Parametric covers can also be applied for hurricanes and to some extend flood. Weather risk, such as extreme temperatures or atypical precipitation patterns can be also be covered. Multiple-trigger structures can be constructed in combination with other independent, quantifiable metrics such as energy prices or volumetric exposures in agriculture to name just a few.

Our challenges Location of client assets and business exposures allow us to

model a tailored solution for the client. Customized limits and triggers enable flexibility of solutions and

achievements of the best risk transfer value for a client’s particular concerns.

To find the right solution, it is helpful to have a sense of clients’ budget, particular concerns, and/or required limits. Working together we can design payout triggers which provide quick and necessary funds for clients to optimise their recovery effort.


Wind/PowerPrice Correlation Swap

BackgroundSwiss Re Corporate Solutions’ client and weather team wondered if they could insure that the wind/power price relationship remained stable. That would allow portfolio managers better to plan their medium-term investments and their near-term forward contracting strategy.

Our innovative risk solutionThe solution was not exactly an insurance policy, but an index swap, or contract for differences. The index we created uses a calculated “Wind Weighted Average Price” to express a month’s spot price yield produced by wind as a percentage of that month’s realised spot price.The swap calculates a pay/receive based on an index value which is the discount applicable to the spot price that, if applied, reflects how much less wind production realises in effective spot price yield than total system production. The swap buyer gets paid if correlation is higher than expected, based on a notional MWh amount chosen by the buyer. This (correlation) hedge can be in the form of a pure no-premium swap or a swap with a specified strike and a premium, as needs demand.

How else can this be applied?Any wind producer. They know that they have variability risk, but some of that is made up by the fact that low wind can produce high spot prices.

Any diversified producer with uncontracted spot-driven exposure. If a producer is running part of the book for the grid, that’s based on a spot price view. Wind, being unpredictable, can play havoc with that view. The product guarantees that spot prices will respond normally to the variable wind in the system, again, permitting better optimisation of a production portfolio.

Our challenges Solving it took a combination of skill in index-based products, a close working relationship with the client in product design, and underwriting expertise in wind and power prices to price

and close the deal.


Non-physical Damage Business Interruption

BackgroundA U.S. hotel company is exposed to “Black Swan” events that can result in significant loss of income at most of its properties in North America. Black Swan events (i.e. Named Perils) include; terrorism; pandemic; acts of civil authority and wide spread travel disruption. The hotel company would like to protect earnings, its balance sheet and maintain liquidity in a protracted down market post event.

Our innovative risk solutionAn independent hotel industry index was selected whereby both parties could evaluate movements in revenue per available room (“RevPar”). The independent industry index was used rather than actual business interruption losses to strip out moral hazard and poor business decisions from the loss calculation and also enable a quick payout. Coverage is triggered if one of the Named Perils occurs and the industry RevPar index decreases by 10% or more from prior year monthly RevPar. The hotel company was now able to insure against non-physical damage Black Swan events which impact earnings. No traditional insurance product was available to cover the risk. The solution is fully transparent and objective based on an independent index.

How else can this be applied?Non-physical damage business interruption (NDBI) covers can be applied across many industries for Black Swan events which include terrorism, pandemic, acts of civil authority and wide spread travel disruption.

Our challenges Determining frequency and severity of events. Agreement of all parties on the appropriate balance between

risk assumption, risk transfer and price for these novel ‘Black Swan’ risks.


Efficient Fronting

BackgroundA large multinational energy company approached us with a request to ‘front’, i.e. to issue admitted insurance policies, with substantial limits for its captive.

Our innovative risk solutionSwiss Re Corporate Solutions put together a one-year fronting arrangement that provides bespoke coverage for property (onshore and offshore), business interruption and third-party liability risks for several countries. The client awarded the transaction to Swiss Re Corporate Solutions, due to our expertise and leadership in the global energy insurance market, our large net capacity, and our capability to structure complex deals across multiple countries and lines of business. Our challenges

Higher complexity compared to a ‘typical’ traditional fronting arrangement due to compliance, regulatory and tax issues for the covered territories.

Regulatory collateral requirements (Schedule F in the US and tied asset rules in the EU).

Risk mitigation issues in connection with the captive involvement.

How else can this be applied?Fronting can be applied to a all industries. Clients who need to evidence insurance to their clients, regulators, lenders or any third party, and who are comfortable assuming certain risks, can use efficient fronting arrangements. This requires the financial strength of a highly rated insurer, like Swiss Re Corporate Solutions, to provide evidence of insurance, for short and often for long periods. For complex transactions with relatively low claims frequency yet sizeable (net) capacity requirements, clients will find a perfect partner in Swiss Re Corporate Solutions.


Your Innovative Risk Solutions Team

Loredana Mazzoleni NeglénHead CX & Global Customer & [email protected]+41 43 285 61 88Zurich, Switzerland

Thomas KeistGlobal Captive Solutions [email protected]+41 43 285 8724Zurich, Switzerland

EMEA

Jan BachmannHead Innovative Risk Solutions [email protected]+41 43 285 2142Zurich, Switzerland

Roy BaumannSenior [email protected]+41 43 285 5722Zurich, Switzerland

Urs NeukommSenior [email protected]+41 43 285 6266Zurich, Switzerland

APAC

Andre MartinHead Innovative Risk Solutions [email protected]+ 65 6428 1889Singapore

Veng Hoong LohSenior [email protected]+65 6428 1814Singapore

Arun MehtaSenior [email protected]+65 6232 3365 Singapore


North America

Robert NussleinHead Innovative Risk Solutions North [email protected]+1 212 317 5427New York, USA

Scott CarpinteriSenior [email protected]+1 805 728 8303Los Angeles, USA

Cole [email protected]+1 415 834 2242San Francisco, USA

Todd CheemaSenior [email protected]+1 212 317 5395New York, USA

Youssef Abdul BakiStructurer North [email protected]+1 647 777 5787Toronto, Canada

Awards for Insur8TM

Most Innovative Product By The Hong Kong Insurance Awards

Asia-Pacific Insurance Innovation By StrategicRISK Asia Pacific Risk

Management Awards

Latin America

Andrea BaerHead Innovative Risk Solutions [email protected]+1 305 679 5534Miami, USA

Jose Antonio IzaguirreStructurer [email protected]+52 55 4450 7532Mexico

Swiss Re Corporate Solutions Ltd.Mythenquai 50/60P.O. Box8022 ZurichSwitzerland

Telephone +41 43 285 2121Fax +41 43 285 2999www.corporatesolutions.swissre.com

Swiss Re Corporate Solutions provides risk transfer solutions to large and mid-sized corporations around the world. Its innovative, highly customised products and standard insurance covers help to make businesses more resilient, while its industry-leading claims service provides additional peace of mind. Swiss Re Corporate Solutions serves clients from offices worldwide and is backed by the financial strength of the Swiss Re Group.

innovating together examples of innovative risk solutions34...its innovative, highly customised...

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