German reinsurance giant Hannover Re benefited from its retrocessional protections in the third-quarter of 2018, ceding roughly 40% of its major loss impacts which amounted to just over EUR 233 million during the first nine-months of the year, over EUR 190 million of which was in Q3 alone.
The third-quarter saw a string of major catastrophe and man-made losses that Hannover Re’s book was exposed to.
The company typically makes robust use of retrocession, including through its work with third-party reinsurance capital providers and through its K-Cessions collateralized sidecar vehicle.
After the third-quarter Hannover Re reported its 2018 loss burden reached EUR 597.9 million gross from 9 natural catastrophe events, 3 property claims and 1 credit claim.
Of this, the company only retained net losses of EUR 364.6 million, suggesting the other EUR 233.3 million was passed onto its retrocession partners.
Some loss events saw a higher rate of cession, such as recent events typhoon Jebi in Japan which saw Hannover Re ceding 48% of its losses on, hurricane Florence which saw the firm ceding almost 40% and typhoon Trami which saw the cession rate rising to 66%.
Investors in Hannover Re’s K-Cessions third-party capital collateralized sidecar vehicle will have taken a share of the reinsurers third-quarter loss load, particularly from the three catastrophe events named above where the difference between gross and net was highest.
It’s also likely that Hannover Re will have been dealing with losses in its book that are fully-funded and collateralized by third-party reinsurance capital through the fronting a transformation services that it provides to ILS funds and managers during the quarter.
Commenting on the quarter, CEO of Hannover Re Ulrich Wallin said, “In property and casualty reinsurance developments in the third quarter were dominated by large losses from typhoons in Japan and hurricanes in the United States. The resulting strains for Hannover Re were, however, in line with our expectations. For this reason, and thanks to the good income from our investments, we are well on track to achieve our profit target for 2018.”
Global reinsurers, such as Hannover Re, are using increasing amounts of retrocession and third-party capital, largely through quota share arrangements, to assist in managing exposure to major catastrophe loss events.
At the same time, Hannover Re is growing in structured reinsurance and other areas where it prefers to retain more of the risk, so it’s not so much a case of ceding more of its overall premiums, but being selective to cede premiums from the book where the most volatility can come from, something Hannover Re has seemed to be quite successful at.