Hannover Re Capital Partners the “missing piece” of our ILS business: Sehm

At the Hannover Re investor day this week Executive Board Member Silke Sehm explained that the establishment of Hannover Re Capital Partners unit is seen as a new sidecar business opportunity, that will help the reinsurance firm write more property catastrophe risk and earn additional fee income.

We reported on the coming launch of Hannover Re Capital Partners (HCP) back in August, explaining that it marks the reinsurance firms first venture into the ILS investment management arena.

At the Monte Carlo Rendez-Vous in September, Sehm had also explained that the reinsurer was already having positive conversations with investors about the new venture, while Hannover Re Capital Partners (HCP) is viewed as a complement to its traditional business and its already expansive offerings in the insurance-linked securities (ILS) space.

It was already known that the new HCP unit will operate like a kind of collateralized reinsurance sidecar offering, although it’s not immediately clear if investors will access the risk via investments into the shares most typically seen with sidecars, or via some kind of ILS fund structure.

But the Hannover Re Capital Partners unit will offer the reinsurance firm a way to underwrite more non-proportional catastrophe business for its clients, backed by third-party capital from investors.

Answering a question from an analyst during the investor day held yesterday, Sehm said, “We are very active in the ILS space. We think we are a market leader, and the business we are currently doing in cat bond transformer business, in collateralized fronting, and in also a few other parts, there’s one missing piece for us.

“This is some sort of a sidecar, and we are currently in the process setting up such a sidecar at HCP, Hannover Re Capital Partners.”

Sehm went on to say, “This means for us also a new business opportunity, because we write nat cat business anyhow, we assess it, we model it, we underwrite it, and take the volatility to our own balance sheet. We are happy and have appetite to even write more on our own balance sheet from a volatility perspective.

“But, we can also add an extra portion on transferring it to the capital market, as we do with all our other ILS activities. And in that way, also generate fee income for us and diversification and less volatile business.”

Of course, Hannover Re has its long-standing K-Cessions sidecar structure, which offers investors a way to back a larger proportion of its business than just nat cat alone.

Hannover Re Capital Partners is set to be the first, seemingly proportional way to share in Hannover Re’s natural catastrophe reinsurance underwriting, offering investors a new way to engage with the reinsurer.