“This year, we have once again provided protection for our clients against a multitude of risks,” said Henning Ludolphs, managing director retrocession and capital markets at Hannover Re. “The variety of cedants and risks as well as the record number of issuances underscores our ability to close insurance-linked securities transactions successfully.”
The company’s biggest transaction this year was a $500 million cat bond providing protection for the Federal Emergency Management Agency (FEMA) for floods in the 50 US states, the District of Columbia, Puerto Rico and the US Virgin Islands that result directly or indirectly from a named storm. The transaction marked the first time FEMA transferred risks through a cat bond to investors.
Hannover Re’s latest transaction was a USD 125 million cat bond covering San Diego-based energy infrastructure company Sempra Energy against third-party liability from wildfires.
Earlier this year, Hannover Re completed three further transactions for existing clients. It helped cover Texas Windstorm Insurance Association against named storms and severe thunderstorms through a $400 million cat bond and American Integrity Insurance Company of Florida, Inc. against named storms and severe thunderstorms through a USD 79 million cat bond. In addition, Hannover Re has transformed $400 million of California and Pacific Northwest earthquake risk for Oak Tree Assurance, Ltd.
GC Securities, a division of MMC Securities LLC, served as the sole structurer and sole bookrunner for all transactions with the exception of the FEMA cat bond. In this case GC Securities was the sole structurer and acted as joint bookrunner together with Aon Securities.
“With this year’s issuances, we have been able to maintain existing partnerships and attract new clients,” said Jürgen Gräber, Hannover Re’s executive board member responsible for coordination of property and casualty reinsurance and insurance-linked securities. “Through our activities in the insurance-linked securities market, we are able to generate margins that are both low-risk and attractive.”
ILS market volume to reach record $100 billion in 2018
By the end of this year Hannover Re expects the market for insurance-linked securities (ILS) to reach a total volume of close to $100 billion. As much as two thirds of that amount will come from collateralised reinsurance, which consists of private contracts between cedants and investors that are backed by collateral held in trust. Reinsurers such as Hannover Re front some of these transactions.
“Collateralised reinsurance will continue to grow strongly,” Henning Ludolphs said. “For investor and cedants, collateralised reinsurance is attractive because of its broader range of risks and simpler structure. Collateralised reinsurance has become a success story in itself and we remain strongly committed to it.”
Hannover Re has established itself as one of the top three fronting companies in the collateralised reinsurance market over recent years. It placed the world’s first risk securitisation in 1994 through its KOVER transaction, making it the longest-serving partner in the transfer of insurance risks to capital markets.