The alternative in life

Published in: Risk management, Risk Models, Longevity - mortality, Corporate strategy, Reinsurance, Regulation, UK, Rest of Europe, US - Canada - Bermuda, ROW, People, Covid-19

Companies: Securis, Guy Carpenter, Eiopa

Luca Tres has been a pioneer in the development of the life ILS markets. As he begins a new role at Guy Carpenter, he talks to Christopher Cundy about the past and future at the intersection of re/insurance and capital markets

Luca Tres

Luca Tres has made financial innovation his hallmark. His team at insurance-linked securities (ILS) fund manager Securis won InsuranceERM's award for "Alternative capital deal-maker of the year" for a record five years in a row, each time for delivering ground-breaking deals transferring longevity, mortality and lapse risk.

This month, he started a new challenge as head of EMEA strategic risk and capital life solutions at broker Guy Carpenter. "Across the various experiences, I always tried to push the envelope on innovation – and that's what makes it fun," he says.

"I always tried to push the envelope on innovation"

He admits it's a tough path to pursue. But any frustrations are overcome with a profound desire, encapsulated by one of his business heroes – the late Sergio Marchionne, best known for his transformation of Fiat and Chrysler.

"'You have to make a bloody difference!', Marchionne used to say. It's an ultralong marathon, but hopefully one day someone will say I did make the difference, both professionally and in my private life. Otherwise... what's the point of all this," Tres says.

From Bocconi to Deutsche Bank

Tres grew up in a small village near Venice and studied accounting and management at high school. Like many at that age, his next move was not carefully plotted as part of a grand strategy.

"The opportunity of studying at Bocconi [University] came up through a scholarship, so I thought, why not?," he says.

"Although I truly tried to, as for most of us, I painfully learned that you can't really control life. And when you start with something, you never know where it leads you.

"But trust me, if you told me I was going to work in the re/insurance space, I would have given you full certainty that it was not going to happen!", he laughs.

As one of the leading business universities in the world, Bocconi has incubated many famous Italian commerce chiefs. And as Tres jokes, "if you meet an Italian working in finance in London, there is a high chance they have been to Bocconi".

He adds: "For me it did what education should always do: be a 'social elevator'. I'll be always grateful to Bocconi for its scholarship system, the mindset and critical system it fosters and for the network it creates across students and professors, some of which - still now - I'm honoured to call mentors and friends".His studies focused on financial institutions and markets, which led down the track of investment banking and an internship at Goldman Sachs doing M&A in London.

"I wanted to do more on the market side of things, so I switched to Deutsche Bank where I started covering Swiss multinationals on their financing and risk management needs." That included working on deals such as Roche's c. $40bn acquisition of Genentech, which completed in 2009.

But covering Switzerland meant Tres was always exposed to banks and insurers, and also got involved in their risk management and financing requirements. He was subsequently asked to join Deutsche's newly formed insurance solutions team, where he got his first taste of Solvency II. "The right opportunity at the right time" he comments.

Switching to ILS

However, over time, banks became less willing to take risk onto their own books. That's when an opportunity came up at ILS fund manager Securis to do exactly that.

"We practically built a market. A niche, admittedly - but still"

"I thought, why not give it a try? Things went well, I became a partner of the firm two years later, and head of the life team origination efforts globally."

"We practically built a market. A niche, admittedly - but still. We were going out offering a solution approach putting together insurance risk-taking and capital market expertise. The opportunity had shifted from public markets to private bilateral trades, where specialist investors take on the risk using highly structured and customised deals. A seed for what I see as a bright future for capital markets in the re/insurance space."

Life reinsurance and capital markets

Tres is optimistic the life risk hedging market will grow over time.

"The insurance industry has massively changed in the last 10 years. The interest in active capital management is only increasing. Then add the upcoming accounting changes, the rating challenges insurance companies often have," he says. 

It's clearly an area that inspires him. "Insurers are one of the most complex economic actors you can think of. Risks are sitting on both sides of the balance sheet, and they are often long dated".

"There are multiple ever-changing and often conflicting frameworks you have to adhere to: regulatory capital, accounting, rating, shareholders' returns. With hard work, you can really thrive in complexity. And that's what will separate good management teams from mediocre ones," he says. Tres sees parallels between banking history and current developments in re/insurance sector.

"The interest in active capital management is only increasing"

"An active capital management approach has been the norm in banking in the last 20 years, and it's now becoming the norm in insurance. Credit funds have played a key role as partners to the banking sector and capital markets players are now becoming more and more relevant as de-risking partners for insurers," he says.

Gaining regulatory approval for novel life de-risking transactions is not always straightforward, but Tres is pleased to see supervisors gaining familiarity with the concepts.

"You can argue that the tough stance they have taken in the past on some of the short-dated remote risk structures is somewhat justified because of the far too limited risk transfer. It's however good to see that some of the European regulators are now showing a positive interest in solutions with a strong element of material risk transfer. Eiopa is doing plenty of work on these topics now."At the end of the day, both the insurers and the regulators' interest should be aligned in pursuing resiliency of the insurer's balance sheet," he says.


The arrival of a global pandemic has refocused attention on the possibilities for transferring pandemic risk to the capital markets.

"Because of its size and its global correlated nature, the traditional reinsurance model is not as effective against pandemic risk as for others. Capital market de-risking solutions and public-private initiatives are a key piece of the puzzle to solve," Tres says. "We should expect material development on this front. Our societies cannot be left off guard again."

But he notes the pandemic is having broader effects on the re/insurance business: "Covid-19 has pushed on the accelerator of the changes that were already affecting the insurance landscape: much more fluid roles across the insurance value chain - through consolidation and vertical integration; new entrants such as insurtechs and private equity; and, obviously, the renewed attention to pandemic risk are some of these changes.

"He says the surge of private equity interest "has materially increased the attention to asset selection and capital optimisation. This higher attention is clearly very welcomed as a way to push on the innovation ladder."

Contribution to society

As well as for private companies, Tres sees reinsurers and capital markets playing an important role in society, helping improve the resilience of countries, especially those in the developing world.

"The existing model of providing relief – through charities, NGOs and international organisations – doesn't work because they can't move enough money quickly enough. It's not their fault, it's just the way it is," he says."

The capital market community, especially because of its size, can be of great help structuring and taking on risk linked to pandemic healthcare risk with mortality."

Some ground has been trodden here. In June 2017, the World Bank launched a pandemic emergency financing facility that incorporated a $320m catastrophe bond and $105m in swaps that would be triggered depending on the seriousness of the outbreak of a number of infectious diseases.

The structure quickly came in for criticism, as it was not triggered by the Ebola outbreak in the DRC in 2018. But the criteria were met when Covid-19 swept the world, and approximately $200m in funds from the bonds and swaps have been disbursed.

Tres says he continues to engage with supra-national organisations to work on ways the finance sector can help weaker economies by taking on pandemic, mortality and healthcare risk.

"That's an important part of the future in terms of business but also for society."

He adds: "All of us have a duty to society by adding value, one way or another."

And he concludes with a smile, "As one of my mentors one day told me, it would be sad to get to retirement, look back and say 'I have done [only] great swaps in my life!".

Christopher Cundy