K-Cessions

German reinsurer Hannover Re has purchased a significant amount of retrocession protection in 2023, and while this has limited its growth appetite in the natural catastrophe space, the company has sufficient room to expand its appetite should opportunities present themselves, according to Sven Althoff, Member of the Executive Board, P&C, Hannover Re.

At the January renewals, global reinsurance firm Hannover Re capitalised on its long-standing relationships with investors to grow its K-Cession quota share sidecar structure to a record size, ultimately helping the company do more to support its ceding clients demand for natural catastrophe capacity.

Hannover Re expects to be able to benefit from its robust retrocession arrangements through the rest of the reinsurance renewals in 2023, as this enlarged source of partner capital, topped off by the biggest ever K-Cessions sidecar placement, will help the reinsurer offer more capacity without increasing its own net risk appetite.

During a January 1st renewal season the reinsurer describes as a very challenging market environment for all participants, Hannover Re secured an increase in natural catastrophe retrocession, including the expansion of its capital markets backed K-Cessions quota share sidecar facility of almost 85% to $831 million, the biggest it’s ever been.

Global reinsurance firm Hannover Re has increased its net major loss budget for 2023 to EUR 1.725 billion, citing growth in its P&C reinsurance book and an “increased loss expectation from natural catastrophes” as the drivers.

Hannover Re’s CFO Clemens Jungsthöfel revealed that the reinsurance company is anticipating a gross loss from hurricane Ian of close to EUR 400 million, excluding effects from its ILS fronting business, which suggests as much as EUR 124 million in losses will be shared with retrocessionaires.

It’s becoming increasingly clear that losses to the aviation class of insurance and reinsurance business caused by the Russia – Ukraine conflict have the potential to impact retrocessional covers and perhaps some third-party capitalised sidecars.

Global reinsurance company Hannover Re could find some support from its capital markets backed K-Cessions quota share sidecar facility for certain non-war specialty lines exposures to the ongoing conflict in Ukraine.

Hannover Re faced more challenging market conditions when placing the renewal of its retrocession program at 1/1, resulting in a shrinking of protection, with its capital markets backed K-Cessions quota share sidecar facility declining 26% to around $450 million.

Reinsurance as a sector and the major global reinsurers have suffered due to elevated catastrophe losses in recent years, but analysts at investment bank Berenberg believe that Hannover Re’s comprehensive retrocession program is giving investors confidence and helped to buoy its share price in 2021.