Hannover Re has bought a portfolio of reinsurance from Scottish Re which was part of a life insurance securitization issued under SPV Orkney Re. Through the acquisition Hannover Re now assumes the mortality risk of term life and endowment policies which were reinsured by Scottish Re during the underwriting years of 2000 to 2003.
The Orkney 1 securitization transaction has been unwound by Scottish Re who themselves have been under run-off and ceased writing new business in 2008 and the defined block of life policies has been ceded to Hannover Life Re. Hannover Re assumes the technical liabilities of the portfolio and will in turn receive the necessary assets from Scottish Re.
Hannover Life Re will be paid a $565m ceding commission by Scottish Re as part of the reinsurance agreement. Scottish Re will buy the outstanding notes from the securitization for, their press release says, $590m which will leave investors facing some losses as the original value of the notes at the time of issue was $850m.
With Hannover Re assuming more life insurance risk we do wonder whether they could seek to transfer some of those risks back to the capital markets. The press release from Hannover Re can be found here.