Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Hannover Re to issue 500 million Euro Catastrophe Insurance-Linked Securities

According to this article from Forbes entitled “Hannover Re to issue 500 mln eur bond linked to natural catastrophes – CEO,” Hannover Re (formally known as Hannover Rueckversicherung AG) is planning to issue in the next few weeks a 500 mln eur bond linked to natural catastrophes, called a CAT-bond, chief executive Wilhelm Zeller. 'The capital is being provided by North American private equity and hedge funds,' Zeller said.

While working several years ago at Munich Re, Lars Toomre was involved in several insurance risk securitization transactions like the above referenced CAT bond. The size of this proposed issue is large relative to previous new issue CAT activity which was severely held back by the fact that the cost of reinsurance acquired through the Capital Markets was significantly more expensive than direct reinsurance treaties and other retrocessional covers. That Hannover Re is contemplating such a large issue suggests that this reinsurer either needs additional capital to cover the 2004 hurricane losses or that its historic retrocessional covers are not able to provide the support as they have done in previous years. In any event, the reinsurer must be fairly confident that it will not be exposed to too much negative arbitrage between the cat bond execution and traditional reinsurance costs.