German reinsurance giant Hannover Re benefited from its retrocessional protections throughout 2020, potentially ceding almost one-third of natural catastrophe losses and 24% of its losses from the COVID-19 pandemic.
The reinsurer reported its full-year 2020 results this morning, revealing that large losses came in well above budget for its P&C reinsurance business due to the contribution of the pandemic.
Hannover Re reported almost EUR 1.6 billion of net major losses in 2020, 950.1 million of which was from the COVID-19 pandemic.
Natural catastrophes drove net losses of EUR 484.2 million, while man-made losses came to another EUR 160.6 million.
On a gross basis though, Hannover Re’s natural catastrophe and COVID related losses were much higher in 2020 and it’s thanks to the firms robust retrocessional reinsurance arrangements that the impacts weren’t much higher.
As we explained earlier this year, Hannover Re renewed its core capital markets backed K-Cessions quota share retro reinsurance sidecar facility at $610 million in size for 2021, a roughly 10% decrease from the cover that provided in 2020 when K Cessions was $680 million in size.
The reinsurer also has aggregate retro reinsurance and a whole account excess of loss retrocession cover, plus a number of catastrophe swap arrangements.
The structure of the retro program hasn’t changed too much in recent years and it continues to provide robust protection for Hannover Re’s earnings.
Hannover Re reported that its gross catastrophe losses amounted to EUR 711.7 for the year, but after retrocessional cessions and other effects this reduced by 32% to EUR 484.2 million.
Hurricane Laura losses saw one of the highest cession rates, with almost 43% of the gross loss burden ceded, reducing the gross impact from EUR 153.2 million to just EUR 87.5 million.
Very few of the man-made losses were ceded during the year though, with four property losses costing Hannover Re EUR 163.3 million gross, which only reduced by 2% to EUR 160.6 million net of cessions.
Across the natural catastrophe and man-made losses, Hannover Re ceded 26% of the loss burden, or EUR 230.2 million.
On the losses from the COVID-19 pandemic, it seems Hannover Re’s retrocessional reinsurance also responded positively, with around a 24% reduction in losses from gross to net.
Overall, it appears Hannover Re ceded some 25% of its losses, across nat cats, man-made and the COVID-19 pandemic, in 2020, reducing the gross total from almost EUR 2.13 billion to almost EUR 1.6 billion for the year.
Global reinsurers, such as Hannover Re, use retrocession from both traditional and third-party capital sources, with large quota share arrangements one of the key structures used for protection, to assist in managing exposure to major catastrophe and other loss events.