Hannover Re steps back from cat bonds, says too costly (for now)

In a report published by Bloomberg today, Hannover Re are quoted as saying they are stepping back from the catastrophe bond market for the moment due to the associated costs with bringing a new transaction to market. Hannover Re board member Ulrich Wallin is quoted as saying that the three recent cat bond deals (post Lehman collapse) have doubled in prices compared to bonds issued prior to last August (the last time a bond was issued before the financial demise of Lehman Brothers). He said that Hannover Re will not look to renew the Kepler Re deal (which expired at the end of 2008) until the market conditions become more favorable.

Hannover Re have been one of the stalwarts of the insurance linked securities markets issuing both catastrophe linked deals and longevity linked transactions. It appears that there are issues at Hannover which may make it impossible for them to enter into a deal like this at this stage. In other news reports today, Wilhelm Keller the CEO of Hannover Re was quoted as saying that they want to secure price increases of 25-30% at the June renewals time for U.S. property catastrophe reinsurance cover. He also warned that if they do not secure these increases they would have to make big cuts to it’s capacity in those lines. So it looks likely that it’s not just the price of creating catastrophe bond deals that’s stopping them participating in the market at this stage but rather a potential cash-flow (or just seeking realistic rates) issue that they wish to resolve first.