Hannover Re to launch non-proportional catastrophe sidecar

Global reinsurer Hannover Re has plans to establish a new Bermuda-based underwriting agency, backed by third party capital, to fulfil the “missing part” of its current insurance-linked securities (ILS) portfolio.

The new division, called Hannover Re Capital Partners (HCP), will write additional non-proportionate catastrophe business, supported by investor capital – the reinsurer confirmed that it is currently having “very good talks” with two potential investment partners.

Once this capital has been secured, the business “will apply for regulatory approval”, noted Silke Sehm, executive board member at Hannover Re, who was addressing trade press during a breakfast briefing on 8 September 2025 at Monte Carlo’s RVS 2025.

She added that initial investment in HCP would likely be less than $500m as Hannover Re would look to build its new proposition “step by step” to complement its existing ILS activity.

There is no launch date yet for HCP, the reinsurer said.

‘High risk, high return’

Sehm told briefing attendees that the motivation behind HCP’s creation was to fulfil a “missing part” of Hannover Re’s ILS portfolio, which currently includes a life and health proposition, ILS transactions, catastrophe bond transformer business and collaterised fronting.

“The missing part is sidecar activities,” she said.

“With our knowledge, our underwriting skills and expertise on the nat cat side, we think we can also be active [around sidecars]. This is the fifth missing part.

“It’s a pure ILS activity, but we are doing this out of Bermuda because there we do all our nat cat non-proportional underwriting.”

Sehm further described HCP as “a facilitator” that aims to bridge “our expertise to the capital market”.

She continued: “When writing the nat cat business on our own balance sheet, we take the high risk, high return, so to speak – and it’s a high roller on our balance sheet.

“We [can] transform volatile business into fee income in a very lean and effective way because we do the underwriting on the nat cat book anyway.”

Sehm added that Hannover Re has more than a decade of experience dealing with ILS propositions, so the reinsurer certainly plans to grow HCP over time using the same models that it has utilised for its other offerings – eventually, this will include adding other lines of business too, she confirmed.

Devising a ‘blueprint’ for cat bonds

Today’s announcement builds on Hannover Re’s May 2025 launch of “a cat bond with a resilience feature”, Sehm said – a “quite innovative” tool she is “really proud” of.

This product is delivered in collaboration with the North Carolina Insurance Underwriting Association and Guy Carpenter Securities.

“This is quite similar to a normal cat bond – but attached to the cat bond is a resilience feature, which means that the investor will get a little bit less return in a loss free year and this money is used for resilience [for] homeowners policyholders, so making the roof quality better or other risk mitigation features,” Sehm explained.

Patrick Horstmann, general manager at Hannover Re with responsibility for its ILS solutions, added that this resilience bond is “measured in the attachment point”.

He continued: “If a certain measure of the attachment point is not triggered in that year, it’s basically seen as no claims in that year and then it’s paid as a no claims bonus to roof programmes in North Carolina. Otherwise, it’s being paid to the investors for the claims coverage.”

Hannover Re plans to use this template of a resilience bond “as a blueprint for further cat bond activities”. Sehm said: “For my personal view, this really helps to reduce the protection gap, as it’s not always about reinsurance, insurance or nat cat risk, but also having risk mitigation features.”

Increased appetite

Sehm continued that Hannover Re is seeing global natural catastrophe rates “remain stable” or experience a “slight reduction” – dependent on individual situations or the applicable region.

However, she emphasised that the reinsurer was keen to grow in this arena.

She said: “Assuming that prices – as well as terms and conditions – remain adequate, we are prepared to strategically expand our exposure in nat cat business and write more nat cat business.”

To download the full Monte Carlo RVS 2025 annual issue of GR, click here.