INTERVIEW-Swiss Re CFO sees opportunities in CoCo bonds
* Swiss Re CFO says could issue, buy contingent convertibles* Says reinsurers well placed to assess risks attached
ZURICH, Nov 4 (Reuters) - Swiss Re <RUKN.VX>, the world's second-biggest reinsurer, would consider buying or issuing contingent convertible (CoCo) bonds once a market has developed for the novel financial instruments, Chief Financial Officer George Quinn told Reuters.
Under new Swiss capital requirements big banks UBS <UBSN.VX> and Credit Suisse<CSGN.VX> will have to issue CoCos, which are turned automatically into equity depending on a trigger such as the decline of the capital ratio below a given threshold.
While regulators see CoCos as good instrument to avoid government bailouts of large banks in a crisis, some bankers have voiced doubts about the feasibility of creating a market for these instruments.
CoCos could become attractive as a form of capital relief also to insurers as new European capital requirements for insurers, known as Solvency II and coming into effect in 2013, become clearer, Quinn said in an interview on Thursday.
Earlier, Swiss Re posted forecast-beating quarterly profit and said it would repay a costly loan from U.S. billionaire Warren Buffett early.
French reinsurer Scor already plans to issue contingent capital. Zurich-based Swiss Re could follow suit in time, Quinn said, adding reinsurers had to hold vast amounts of capital to cover the risk of events that might happen only once every 200 years and that this was expensive.
"In essence reinsurance is a form of contingent capital already anyway, so we and our clients are relatively well placed to judge the insurance-type risk element," Quinn said.
"A structure that would allow you to call on the capital when it was needed would be a more efficient way to capitalise companies like Swiss Re that have very high levels of capitalisation and protect very unusual and infrequent risk."
As a large fixed income investor Swiss Re would also consider buying CoCos issued by insurance companies or even banks once the conditions and triggers for the new instruments became clear, Quinn said, adding that Swiss Re was best placed to understand the risk posed by CoCos issued by insurers.
"I'd never rule out banks, so the challenge is simply making sure that we have a good understanding of the risks we accept."
"If a market emerges for contingent capital in the right form, with the right terms and conditions, we will certainly evaluate whether it would be an appropriate part of what we do. Intuitively, it seems very attractive," Quinn said.
(Reporting by Jason Rhodes; Editing by Jon Loades-Carter) ((jason.rhodes@thomsonreuters.com; +41 58 306 7312; Reuters Messaging: jason.rhodes.reuters.com@reuters.com))
