Hannover Re in LI Re retrocession securitization using Kaith Re vehicle

by Artemis on October 23, 2014

German reinsurance firm Hannover Re has used its Bermuda domiciled segregated accounts company Kaith Re Ltd., which acts as a type of collateralized quota share sidecar for the reinsurer, to issue a new $10.37m securitization named LI Re (Series 2014-1).

Hannover Re’s Kaith Re vehicle has typically been used for quota share cession of a portion of the reinsurers’ risk to investors, forming part of the firms K cessions series of transactions. The proportional collateralized securitization arrangement provides Hannover Re with a vehicle for retrocessionally reinsuring a portion of its portfolio with capital markets investors on a cost-effective basis.

Hannover Re first used the Kaith Re vehicle for its K3 capital market retrocession transaction back in 2002, as it moved to using a segregated accounts company for the portfolio-linked securitization. Kaith Re was also used in 2006 and 2007, for Hannover Re’s K5 and Kepler Re transactions.

The K series of transactions have typically been focused on property and catastrophe lines of business, also including such risks as aviation and marine. On the life side of its portfolio, Hannover Re has a track record in deals beginning with L, such as its L1 to L6 life securitization deals.

Yesterday Kaith Re, acting on behalf of its segregated account LI Re, listed the SAC (segregated accounts company) “LI Re” Bond Program and the $10.366,852m “LI Re” Series 2014-1 insurance linked bond due 15 June 2016 on the Bermuda Stock Exchange as Section V Insurance Linked Securities.

We don’t know any further details regarding the underlying perils, whether this is a property catastrophe cession or a life reinsurance cession, or any details on the structure at this time.

We can make the assumption that this is a case of Hannover Re providing a securitized chunk of its K cessions retro program to an institutional investor who has a mandate for the liquidity that a securitized and listed ILS bond will bring to its portfolio. Essentially this would mean that the risk has been transformed using the segregated account structure into a bond format (whether catastrophe bond or life bond) to meet an ILS investor or funds mandate.

If any further information emerges we will update you. At this time we are not adding this issue to our Deal Directory as it may simply turn out to be Hannover Re using a securitization for risk it had already ceded to Kaith Re, rather than being a new transaction in its own right.

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