Hannover Re continuing to grow collateralised reinsurance fronting business

Acting as a front or transformer for insurance-linked securities (ILS) funds and investors is an increasingly important part of global reinsurance firm Hannover Re’s business and there is evidence these activities grew further for the company in the first-half of 2023.

As we’ve explained before, Hannover Re has been steadily expanding the volume of collateralised reinsurance business that it acts as a front or a transformer for.

Hannover Re continues to grow its role in insurance-linked securities (ILS) market facilitation, through its fronting and risk transformation activities for collateralised reinsurance and catastrophe bond transactions.

In recent years, the reinsurer has grown its activity in the space, not least as it partners with dedicated ILS fund managers and investors, helping them to access risk through Hannover Re’s structures and using the added benefit of its balance-sheet to absorb some tail risk.

For Hannover Re, these fronting and risk transformation relationships deliver additional earnings in terms of fees, and perhaps as importantly allow the company to become a larger and more important reinsurance partner to clients, enabling them to directly access capital market capacity alongside the balance-sheet protection it provides.

In 2022, one of Hannover Re’s measures of the fronting and risk transformation activities grew significantly, with ceded exposure limit of the underlying retrocession arrangements rising 36% to almost EUR 6.2 billion for the year.

Now, Artemis has learned that in the first-half of 2023 another measure of these ILS-related activities was up significantly again.

Hannover Re reported that the collateral furnished to ceding companies by investors, as security for potential reinsurance obligations from ILS transactions it facilitated, reached more than EUR 4.6 billion for the first-half of this year.

That was up by 38% on the prior first-half total of just over EUR 3.32 billion.

The growth in collateral provided by investors for the ILS deals Hannover Re facilitates is yet another reflection of the reinsurers growing importance in the marketplace.

Hannover Re has created a significant position for itself in the collateralized reinsurance market, as well as in fronting for catastrophe bond sponsors.

These activities deliver fee income to Hannover Re, as well as an ability to become increasingly relevant to its own clients, while also making itself an indispensable partner to ILS managers and investors that use its services.