Hannover Re are planning a return to the catastrophe bond market with a €75m deal featuring non-U.S. perils and a novel approach to the collateral problem. It’s great to hear that Hannover Re are happy to return to the market given that in March they weren’t interested due to the costs being too high. The costs associated with issuing a transaction have dropped of late and hopefully this will encourage other participants to return to the market.
Hannover Re are planning to utilise the special purpose vehicle from their 2006 Eurus transaction, hence the planned deal being dubbed Eurus II. Eurus II is being marketed as a €75m deal designed to provide Hannover Re with protection against losses from European windstorms. Investors will be pleased to see the second deal covering non-U.S. perils as it will allow them to diversify their portfolios risk away from the U.S. Atlantic and Gulf coasts.
The deal is thought to be of a similar type to the first Eurus transaction from 2006 which employed a parametric trigger. We’ll bring you more details as they emerge on that. Eurus II, we hear, will not utilise a total-return swap counterparty. In it’s place will be a tri-party asset repurchase scheme involving an investment bank, the issuer and a clearing house (Euroclear). This will use the investment banks portfolio of highly rated corporate bonds as a form of collateral. It remains to be seen whether the returns from this approach will be great enough to lure the investors to the deal.
AIR Worldwide are providing risk modelling services to this transaction which is expected to close around the end of July.
You can find more details on Eurus II and all other catastrophe bond deals in the Artemis Deal Directory.