Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Hannover Re transfers facultative risks to the capital markets for the first time


Hannover Re has become the first to transfer a portfolio of facultative risks to the capital markets through it’s new sidecar venture Fac Pool Re. Providing $60m in capital, Fac Pool Re is the first attempt by a reinsurer to securitise a pool of clients facultative business within the capital markets rather than holding the risk themselves. Individual risks of Hannover Re’s worldwide clients are selected to be pooled and transferred to the capital markets, this acts to allow the clients to access the capital markets for single risks which wouldn’t normally be possible. The pool of risks as a whole becomes large enough to be attractive to capital markets investors.

The Fac Pool Re deal will run for two and a half years and consists of a quota share cession and two tranches of risk. Of the $60m in capital Hannover Re will keep a share of $5m and will also assume any losses above the capacity of Fac Pool Re.

Hannover Re has timed this deal really well. It’s been in the making for a few months as they found enough suitable risks for the pool, but launching it now at a time when insurance linked securities are rising in popularity with both cedents and investors was important for its success. Could this type of risk pooling be a way forwards for the ILS market to broaden the variety of risks it assumes? It would be interesting to see other large risks bundled in this way and transferred to the capital markets, it could open up a whole new line of business for those who specialise in this market.

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