Hannover Re securitizes reinsurance recoverables

Following successful securitizations in property/casualty and life/health reinsurance business, Hannover Re has now for the first time transferred the risks deriving from so-called “reinsurance recoverables” to the capital market.
Reinsurance recoverables the outstanding claims held by reinsurers against their retrocessionaires traditionally constitute a substantial item on Hannover Re’s balance sheet, the company said in a press release.
The underlying portfolio has a nominal value of EUR1 billion (Cdn$1.53 billion), the company noted. It is comprised of exposures to insurers and reinsurers that are classified according to risk classes.
These recoverables are of a high credit quality and their level per company has always been strictly limited, the company said. Nevertheless they adversely affect the assessment of the group’s solvency by rating agencies, primary insurers and brokers. Therefore monitoring these balances forms an integral part of internal risk management.
With the present securitization, Hannover Re said it would be substantially reducing the default risk associated with reinsurance recoverables. “We assume that the rating agencies of relevance to our industry will consider this transaction – in quantitative and qualitative respects positively,” said Hannover Re CEO Wilhelm Zeller. With this transaction, Hannover Re has effectively immunized itself against a potential credit risk”.