The recent $10.37m LI Re (Series 2014-1) securitization of a segregated cell of reinsurance company Hannover Re’s Bermuda segregated accounts insurer Kaith Re Ltd., was a property catastrophe insurance-linked security (or catastrophe bond) it transpires.
When we wrote about the LI Re deal just over a week ago, we suggested that it might be a retrocession transaction benefiting Hannover Re, where the reinsurer was using the cell and the securitization to transfer a portion of its retro vehicle to capital market investors.
Given Kaith Re is the vehicle that Hannover Re has been using for its latest K cessions retro needs, this seemed a likely reason for the transaction, but it transpires that in this case the underlying risks involved in the LI Re 2014-1 deal were not Hannover Re’s, rather it is acting on behalf of a cedent and investor as a transformer and private cat bond service provider.
We also didn’t know what class of business the LI Re securitization featured, but now know this to be a property catastrophe reinsurance ILS deal, but we don’t have exact peril or trigger details.
The private transaction saw Kaith Re, a Bermuda Class 3 insurer owned by Hannover Re, on behalf of its segregated cell LI Re, transform a property catastrophe reinsurance contract, from an unknown cedent, into an insurance-linked security which was sold to a single ILS investor.
The underlying reinsurance contract does not cover Hannover Re’s risks, rather here we see Hannover Re utilising the transformation facilities that its Class 3 insurer provides to offer a cedent a private cat bond facility to effect the deal, between the cedent and the investor.
In this case Hannover Re is effectively providing a similar service to those offered by a number of brokers and arrangers of catastrophe bonds and ILS, allowing a cedent to use its services and vehicles to sponsor a cat bond lite or private ILS deal.
The rationale behind the deal is likely based on the requirements of the single ILS investor which presumably has a mandate requiring liquidity and hence a securitization into ILS or bond form is preferred as its way to participate in the reinsurance contract.
Hannover Re has been providing ILS fronting and presumably some risk transformation services for a while, but this deal may be a step further as it strengthens its services to the ILS space and insurers or reinsurers seeking to transfer risks to capital markets investors.
That makes the deal very similar to other private cat bonds that we cover and include in the catastrophe bond Deal Directory on Artemis. So, we’ve decided to include this deal in the directory (here LI Re (Series 2014-1)), although given the lack of information we haven’t included the data in our ILS market statistics (apart from within 2014 issuance) as yet.
Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.
Get a ticket soon to ensure you can attend. Secure your place at the event here!