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Hannover Re forecasts record ILS and cat bond volumes in 2022


Global reinsurance company Hannover Re is forecasting a record year for the insurance-linked securities (ILS) market in 2022, with continued expansion of the sponsor-base outside of insurance and reinsurance markets expected.

hannover-re-signIn 2021, Hannover Re helped to transfer a record volume of catastrophe bonds to capital market investors for its clients, acting as a risk fronting counterparty to enable simpler access to the insurance-linked securities (ILS) investor-base.

Hannover Re worked to transfer US $2.7 billion of catastrophe bond issuance to the capital markets in 2021, with 11 cat bond deals facilitated during the year.

The reinsurer said that this extends its leading position in ILS.

“The demand from our clients for alternative risk covers was stronger last year than ever before,” explained Silke Sehm, a member of Hannover Re’s Executive Board with responsibility for the reinsurers ILS activities. “Almost 30 years ago Hannover Re was one of the market pioneers for the securitisation of insurance risks. With our extensive know-how we still rank to this day among the market leaders and we continue to play a pivotal part in numerous innovative transactions.”

Hannover Re’s work in the catastrophe bond market in 2021 covered the placement and transfer of a range of natural disaster exposures into the capital markets in catastrophe bond form, including floods, storms, earthquakes and wildfires.

Issuance sizes ranged from as small as US $30 million to as large as US $575 million, the company said.

One highlight in Hannover Re’s latest update on its ILS and cat bond market activities, is the fact the reinsurance firm is seeing expanding demand, especially from sponsors hailing from outside of re/insurance markets.

Demand for catastrophe bonds as a form of alternative risk transfer coverage has traditionally come from within insurance or reinsurance, but not Hannover Re is increasingly seeing clients from outside of the market looking at cat bond protection.

In the last year, Hannover Re helped companies in the energy, logistics and technology sectors with the transfer of some of their insurance risks to the capital market through cat bonds.

“More and more companies outside the insurance sector, such as Prologis or Sempra Energy, are deciding in favour of risk transfer to the capital market and Hannover Re so far has managed to win a large portion of these mandates. That shows just how much potential the ILS market still has to offer and how important a partner with solid experience is,” explained Henning Ludolphs, Managing Director Retrocession and Capital Markets at Hannover Re. “We see a sustained trend towards demand for ILS covers going beyond the insurance sector and expect other companies to tap into the advantages of such risk transfers.”

As well as its work in transforming and facilitating the transfer of insurance and reinsurance risks through catastrophe bonds, Hannover Re is also very active in collateralised reinsurance as well.

Hannover Re has been one of the most active fronting companies for collateralised reinsurance for a number of years now and said that in 2021 it again expanded the volume of transactions that it facilitated.

In this segment of the ILS market, Hannover Re helps insurers and investors enter into private, non-tradable risk transfer transactions that are backed by collateral held in trust, acting as a fronting company.

“Collateralised reinsurance will continue to form a significant part of the ILS market that keeps on growing,” Ludolphs said. “Investors and cedants find this segment of the ILS market attractive owing to the broader range of risks and on account of its more straightforward contractual structures. Collateralised reinsurance is a success story and we intend to play a prominent role in the next chapter just as we have to date.”

For 2022, Hannover Re is forecasting a record volume of ILS market activity, saying it expects over US $100 billion will be transferred during the year ahead.

In 2021, Hannover Re sees the ILS market’s volume as having reached US $95 billion, with collateralised reinsurance activity relatively flat and excluding the mortgage insurance-linked securities segment of the market.

Hannover Re is forecasting growth for both collateralised reinsurance and for catastrophe bonds in 2022, which on the back of 2021’s record level of catastrophe bond market activity will be particularly impressive.

In 2022, Hannover Re expects that roughly two-thirds of the ILS market’s volumes will still come from collateralised reinsurance, with the remainder consisting of catastrophe bonds.

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