Hannover Re increases sidecar use at 1/1, secures additional retro cover

by Artemis on February 2, 2017

At the key January 1st 2017 reinsurance renewals Hannover Re increased its use of third-party retrocession capacity via its K-Cessions sidecar vehicle, purchased additional catastrophe retrocession protection, and also reported growth in its structured reinsurance business as demand spiked.

The reinsurance giant announced today that it has increased its 2017 profit guidance to more than €1 billion ($1.1 billion), in response to a strong round of treaty renewals at 1/1 2017.

The company revealed, during a recent conference call on its renewal experience, that it expanded the use of its retrocession sidecar vehicle, K-Cessions, and also purchased some new retrocession catastrophe protection, as it maintained its allocation to natural catastrophe business, at €1.85 billion.

The reinsurer said that capacity placed with its retro sidecar vehicle is now more towards the $600 million mark, and the company actually increased the volume of its business that’s protected by its K-Cessions venture to just shy of 45%, compared with around 40% a year earlier.

Further highlighting the availability of efficient retrocessional protection, Hannover Re revealed that it also purchased an additional €100 million of retro cover at 1/1, the first time it has done this since 2011.

The additional retro cover is to protect the reinsurer’s large loss budget, and is essentially there for spillovers from unexpected nat cats, whether frequency or severity driven, explained the firm.

The reinsurance company also reported growth in its structured reinsurance business, taking advantage of increased demand from clients for tailored solutions.

At the January renewal period the firm increased its structured reinsurance business by €710 million, to a reported €1.783 billion, mainly driven by North America, Europe and Latin America, Hannover Re reported during the call.

Over the coming months the reinsurer expects structured reinsurance to drive its P&C premium growth, as demand for such cover continues to increase across the world.

The reinsurer noted some price stabilisation at the renewal season, but did stress that this wasn’t as across the board as some had anticipated. For structured reinsurance business the company saw better rates when compared with other areas, such as specialty lines like aviation and marine, where it saw the steepest rate declines at renewals.

That Hannover Re witnessed price stabilisation will be promising for insurance-linked securities (ILS) players, too. As is the fact that large, influential reinsurers like Hannover Re are ceding a greater proportion of risk through retrocession.

With players like Hannover Re utilising the abundance of efficient, willing and able ILS capital to secure additional retro cover others in the space could follow suit, providing ILS players with an opportunity to provide needed capacity that supports the world’s largest reinsurance players.

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