Swiss Re Insurance-Linked Fund Management

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Collateral held in trust for ILS transactions rises 11% for Hannover Re

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Global reinsurance firm Hannover Re has been quietly expanding its activities in the insurance-linked securities (ILS) space for some time, as a key facilitators for collateralised transactions and acting as a front for certain ILS funds and investors.

hannover-re-logoEvery so often, more details emerge on the growth of this side of Hannover Re’s business, which sees the reinsurance company effectively expanding the limit it can deploy to serve clients even further, while generating a source of fee income as well.

Hannover Re is a key facilitator for the global ILS market, with its activities spanning a number of different segments of the space.

The reinsurer acts as a conduit for its ceding clients to access the capital markets as a source of reinsurance, in catastrophe bond and collateralised reinsurance form, as one area of activity.

Hannover Re also works with the capital markets directly, by facilitating transactions for ILS investors and ILS funds who use the reinsurer as a fronted balance-sheet.

In addition, Hannover Re also uses collateralised sources of retrocession for its own protection needs, with its flagship capital markets backed K-Cessions quota share retro reinsurance sidecar facility having increased in size to $680 million for 2020.

One measure of growth in this space is the volume of reinsurance limit that Hannover Re fronts for ILS investors and funds, which as we explained back in May had increased by 7% over the course of 2019.

This figure reached EUR 6.5594 billion by the end of 2019, up from EUR 6.1313 billion for the prior year.

Another metric that further underscores the growth of Hannover Re’s business in ILS facilitation, is the fact that, as of June 30th 2020 collateral posted by investors as security for potential reinsurance obligations from ILS transactions that the reinsurer was involved in, rose some 11% over the previous year.

ILS collateral, posted to support reinsurance obligations associated with Hannover Re facilitated ILS transactions, reached EUR 3.0181 billion at the end of June 2020, up on EUR 2.7166 billion a year earlier.

It shows Hannover Re remaining a major player in the ILS market overall, as well as perhaps the largest fronting provider to ILS funds and investors at this time.

More reinsurers are looking to front for ILS capacity, but most haven’t gone wholesale into this style of facilitation yet as they also want to manage third-party capital directly.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

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