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.