Property catastrophe risks of a number of US cedants were pooled and transferred to the capital markets
Hannover Re has completed the first transaction as part of its extended Insurance-Linked Securities (ILS) activities.
Property catastrophe risks of a number of US cedants have been pooled and transferred to the capital market in several tranches. In contrast to the company's previous securitisations, Hannover Re's interest here is not in protecting its own business but in directly transferring clients' business to the capital market.
"With this type of pooling and transformer function we enable ceding companies to access the capital market - even for risks that would not lend themselves to this on an independent basis", Chief Executive Officer Wilhelm Zeller explained.
The transferred portfolio consists exclusively of US catastrophe business, predominantly hurricane risks in Florida. The reinsurance intermediary Benfield brokered the relevant contracts and modelled the portfolio.
A special purpose entity named Globe Re was established in Bermuda for this transaction; it is capitalised at USD 133 million.
Globe Re is funded by an equity tranche of USD 33 million and a further USD 100 million in bonds. Benfield and Hannover Re have participated in the equity tranche in amounts of USD 20.5 million and USD 5 million respectively.
The bonds - split into three tranches of "BBB-", "BB" and "B" according to Standard & Poor's rating categories - were placed with institutional investors primarily in North America. The investors receive an attractive coupon depending on the risk category. The term of the transaction is one year.
Globe Re is the first transaction to come out of the company's newly created Insurance-Linked Securities department. Set up at the turn of the year, this unit is tasked inter alia with pooling risks from primary insurers and transforming them into securities that can be placed on the capital market.