German reinsurance firm Hannover Re has successfully completed a retrocessional transfer of extreme mortality risks to the capital markets, through the placement of an index-linked mortality swap with largely institutional investors.
The swap covers extreme mortality scenarios on a multi-year basis, hedging life insurance risks against a sudden and severe increase in mortality in the United Kingdom, Australia and the United States. Insurers and reinsurers typically use mortality ILS transactions such as this to protect themselves against the occurrence of extreme events that could cause a massive increase in mortality rates, such as pandemics.
The transaction has been structured as an index-linked mortality swap by Hannover Re and the reinsurer also placed it with the investors, which were primarily institutional in nature. Hannover Re has now placed $160m of this mortality swap in the last two years, according to the reinsurer.
Ulrich Wallin, Chief Executive Officer of Hannover Re, commented on the deal; “With this transaction we have developed a customised concept designed to counter the impacts of a significant increase in mortality rates.”
Hannover Re continues to leverage the ILS markets as a source of capacity for its own hedging or retrocession needs, while also enabling institutional investors to access and participate in insurance risks.
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