Hannover Re’s cat bond fronting hits record level, collateralised ILS activity expands in H1 2024

Global reinsurer Hannover Re has seen continued success in its business servicing and facilitating transactions in the collateralised reinsurance and insurance-linked securities (ILS) market in the first-half of 2024, with it notably beating its own full-year record for catastrophe bond limit fronted for already this year.

In recent years, Hannover Re has become one of the most important facilitators within the global insurance-linked securities (ILS) market.

Its work sees the reinsurer helping cedents with their catastrophe bond transactions, by fronting the capital markets, and also utilising its balance-sheet to help other ILS fund managers and investors access reinsurance and retrocessional risk in collateralised form.

Hannover Re’s position as a facilitator for the insurance-linked securities (ILS) market has continued to grow this year, through its fronting and risk transformation activities for collateralised reinsurance and catastrophe bond transactions.

By partnering with dedicated ILS fund managers and investors, Hannover Re helps them to access risk through its structures, or their own, with the added benefit of its rated balance-sheet deployed to front transactions and also absorb some of the tail risk associated with deals.

Hannover Re enjoys benefits from these fronting and risk transformation relationships through incremental earnings, in terms of fees, by helping fund managers and investors access risk.

Also, just as important, the reinsurer is able to play a role as a larger and more important partner to clients and cedents, helping them access sources of capital market reinsurance capacity efficiently, alongside the robust balance-sheet protection it provides.

One of the best measures of the growth of this business for Hannover Re is in the amount of collateral furnished to trust accounts, to support investor and ILS fund manager’s obligations to the reinsurance arrangements.

For full-year 2023, Hannover Re reported EUR 5.112 billion of collateral that had been furnished by investors as security for potential reinsurance obligations from ILS transactions for that year.

That was a significant increase on the EUR 3.323 billion reported for the same in full-year 2022.

Now, for the first-half of 2024, Hannover Re has 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.

Hannover Re has also seen continued success in fronting the capital markets for catastrophe bond sponsors in 2024, with a number of significant deals facilitated in the first-half and a new full-year record already set.

Among these are a $100m Montoya Re Ltd. (Series 2024-1) transaction, a $305m Integrity Re Ltd. (Series 2024-1) deal, a $575m FloodSmart Re Ltd. (Series 2024-1), the $450m Cape Lookout Re Ltd. (Series 2024-1) issuance, the giant $1.4bn Alamo Re Ltd. (Series 2024-1) cat bond, the $145m Longleaf Pine Re Ltd. (Series 2024-1), a $100m Mayflower Re Ltd. (Series 2024-1) cat bond, and the $85m Puerto Rico Parametric Re Ltd. (Series 2024-1) catastrophe bond.

That is already $3.16 billion of catastrophe bonds that Hannover Re had fronted the capital markets for in the first-half of 2024.

We believe that’s a new record for the company, as for 2023 it had put the full-year figure at $2.8 billion in cat bonds placed that it had played a role in facilitating for clients.

So Hannover Re is benefiting from two market dynamics it seems, the growth of the catastrophe bond market sees it fronting for an increasing amount of limit in 144A catastrophe bond form, while the continued recovery of the private ILS market has seen its fronting for collateralised reinsurance expand further as well.

All of this will be driving increasing fee income and revenues for Hannover Re, with the reinsurer presumably paid service fees for acting as a front and facilitator for ILS and capital markets reinsurance deals.

It’s worth also noting, that Hannover Re also facilitates private catastrophe bonds under the Seaside Re and LI Re programs, all issued through its Kaith Re segregated accounts company. So the reinsurer has additional sources of ILS facilitation income as well and this is likely an increasingly meaningful source of fees for the company.