Swiss Re lands $75 million committed capital deal with US multi-line insurer

Swiss Re and Horace Mann Educators, an auto, homeowner and life insurance provider to US teachers with $1 billion in revenues, have struck a three-year $75 million committed-capital deal. By the terms of the deal, if Horace Mann incurs catastrophic windstorm-related losses exceeding an undisclosed amount, the company has the option to sell $75 million in cumulative preferred securities to Swiss Re Financial Products Corporation, or to enter into a 10% quota share reinsurance agreement with Swiss Re America.

According to George Zock, executive vice-president of financial services at Horace Mann, based in Springfield, Illinois, the Swiss Re deal was a renewal of a similar three-year arrangement the company had with Bermudan reinsurer Centre Re. Aon was insurance broker for the current deal. Zock said the risk covered was a 1 in 1,000 year event.

Tom Skwarek, head of Swiss Re's Capital Solutions unit, said the deal was indicative of growing interest from insurance companies in alternatives to higher priced insurance since September 11.

Whereas traditional reinsurance protects an insurer's earnings from catastophic losses, committed capital replenishes firm capital and allows an insurer to continue writing new business through a catastrophe. According to Skwarek, because the contingent capital seller, Swiss Re, provides capital that will be re-paid, the cost of protection can be cheaper than with traditional insurance.

Another advantage of committed-capital arrangements, according to Skwarek, is that they afford multi-year cover as opposed to yearly renewable cover with traditional insurance. This insulates protection-seekers from potentially volatile insurance markets.