Hannover Re’s insurance-linked securities (ILS) market facilitation actions continued to increase in 2024, with the variety of collateralised reinsurance participations fronted for traders rising, whereas its disaster bond fronting additionally grew to a brand new document degree.
Hannover Re has been lively within the insurance-linked securities (ILS) market for a few years, as sponsor of securitized danger switch transactions, a risk-sharing associate for third-party traders by its Ok-Cessions quota share sidecar, and more and more lately as a facilitator that helps cedants entry capability from the capital markets and assists institutional traders or ILS funds to entry danger.
On the disaster bond facet, the place Hannover Re fronts the capital markets as an intermediating reinsurer for sponsors seeking to enter into cat bond transactions, 2024 noticed the reinsurance firm switch round US $4 billion in exposures to the capital markets throughout 13 cat bond offers, protecting a variety of disaster perils.
That was a document yr for the cat bond fronting enterprise at Hannover Re, up from 2023 when the corporate put the full-year determine at $2.8 billion in cat bonds positioned the place it had performed a job in facilitating the danger switch and entry to capital market traders for purchasers.
However, it’s in collateralised fronting preparations, the place Hannover Re facilitates the switch of dangers assumed from ceding corporations to institutional traders utilizing structured entities, that the biggest figures nonetheless come into focus for 2024 as the corporate grows its stature as a key facilitator in that extra non-public ILS market.
Hannover Re enjoys advantages from these fronting and danger transformation relationships by incremental earnings, by way of charges, by serving to fund managers and traders entry sources of reinsurance danger, in addition to by rising its significance out there and with its ceding purchasers.
As we’ve mentioned earlier than, among the finest measures for a way this enterprise has grown for Hannover Re is within the quantity of collateral furnished to belief accounts, to help investor and ILS fund supervisor’s participation in and obligations to the underlying reinsurance preparations.
For 2023, Hannover Re had reported EUR 5.112 billion of collateral that had been furnished by investors as safety for potential reinsurance obligations from ILS transactions, which was a big improve on the EUR 3.323 billion reported for a similar functions for full-year 2022.
After the first-half of 2024, Hannover Re then reported that the amount of collateral furnished by investors as security for potential reinsurance obligations from ILS transactions had risen to almost EUR 6.96 billion at the mid-year stage.
Now, for full-year 2024, Hannover Re has once more reported that determine growing, as held in single belief funds the reinsurance firm studies that just about EUR 7.19 billion was furnished by traders as safety for his or her potential reinsurance obligations from ILS transactions.
In order that key metric for Hannover Re’s actions in facilitating and fronting for ILS capital and traders had elevated by roughly 41% year-on-year by the tip of 2024, driving residence the important thing and rising position the reinsurer performs within the ILS market.
It’s arduous to deduce from this precisely how new collateralised fronting enterprise modified in 2024, however Hannover Re mentioned, “The amount of collateralised reinsurance, which stays by far our largest section within the ILS sector, remained steady within the yr beneath assessment on a excessive degree.”
In fact, the funds held in belief for collateralised reinsurance obligations aren’t disbursed instantly on year-end and might be held for any improvement functions associated to a contract and potential losses, so the expansion proportion shouldn’t be construed as development in fronted reinsurance participations alone.
However the reality it’s rising at this tempo displays the significance of Hannover Re’s place as a number one entrance for the ILS fund market right this moment.
Later, we had been informed by an organization spokesperson that the variety of reinsurance participations fronted by Hannover Re had truly elevated in 2024, which exhibits that this enterprise retains rising for the reinsurer.
One other metric that helps to clarify hannover Re’s stature within the ILS market comes by the worth ascribed to the ceded publicity restrict of underlying retrocession agreements associated to conventional and ILS covers transacted by structured entities together with its Kaith Re automobile, that are handed on to institutional traders in securitised kind.
Right here, Hannover Re studies virtually EUR 7.69 billion of ceded publicity restrict on the finish of 2024, up from EUR 6.79 billion a yr earlier.
Lastly, particularly in collateralised fronting for ILS, Hannover Re reported the ceded publicity restrict of the underlying retrocession agreements at simply over EUR 5.4 billion on the finish of 2024.
Curiously, this determine is down on the EUR 6.278 billion as of the tip of 2023.
Right here, Hannover Re assumes an quantity of tail danger on these contracts and that uncollateralised publicity and studies that as of the tip of 2024 the utmost danger of loss from the uncollateralised publicity restrict amounted to EUR 673.1 million, down from EUR 1.85 billion, whereas the anticipated loss on a modelled foundation in a worst-case situation of 10,000 years quantities to at most EUR 31.9 million, once more down from EUR 42.8 million.
Which you may suppose implies a discount in exercise in that collateralised fronting space, however on reaching out to the reinsurer a spokesperson defined that Hannover Re has made some changes in its collateralised fronting preparations.
The Hannover Re spokesperson informed us, “We provide numerous collateralised fronting ideas. These ideas have completely different impacts on what quantities we take into account as ceded publicity. We had a shift in the direction of ideas the place we offer a cease loss for tail danger. Right here, we solely report the collateralised portion as much as the attachment level of the cease loss because the retroceded restrict.”
Additionally saying on collateralised fronting at Hannover Re, “Total, our enterprise is pretty steady, by way of premiums and volumes,” however added that, “The precise variety of reinsurance participations fronted has truly gone up.”
Which once more drives residence the rising position Hannover Re performs as a key facilitator for the ILS fund market, in fronting a rising variety of participations on reinsurance preparations for the capital markets.
