German reinsurer Hannover Re have again utilised the capital markets for their retrocession renewal through their proportional retrocession programme which they call K Cession. Previously called K6, Hannover Re have been bringing retrocessional risks to capital markets investors since as far back as 1995.
The retro renewal process has not been smooth going in 2012, with many failing to renew their full programmes as soon as they would have liked. We still hear reports of retro contracts being renewed this far into January and we also hear that ILW usage has increased as it has been a more reliable source of retro protection in some cases.
Hannover Re has been successful in renewing their protection and have increased its size by $20m to $350m this year. Hannover Re saw strong demand from not just existing but also new investors, reflecting the new sources of capital that are interested in the reinsurance sector this year.
“This transaction serves to complement our traditional retrocession programme which we use to protect against peak exposures such as natural disasters” said Chief Executive Officer Ulrich Wallin. “Given a normal experience of the covered portfolio, our investors profit from extremely attractive returns. Not only that, they are able to diversify their own portfolio and exclude the interest rate risks normally associated with other capital market products.”
The K Cession transaction was placed with institutional investors worldwide and is fully collateralised. Hannover Re says that the cession rate is around 37% and applies to a portfolio of non-proportional reinsurance treaties from the six main zones for natural catastrophe risks as well as the aviation and marine (including offshore energy) lines.