Hannover Re ups nat cat retro at 1.1, including major haul in ILS

Hannover Re sailed through a challenging 1.1 retrocession renewals with increased nat cat retrocession capacity, thanks in part to strong capital inflows to its K-Cession insurance-linked securities (ILS) programme from outside investors.

For nat cat, retrocession coverage is up 56% to €1.34 billion, including a near doubling of low-layer securitisation coverage from its K-Cession programme plus increase in select other layers. Management additionally cited a new cyber quota share retrocession facility of $100 million.

“Our retro partners were willing to support us even stronger compared to the previous year, also in order to take advantage of the good rating environment,” board member and P&C reinsurance leader Sven Althoff told a morning call with market analysts.

The increase in retro coverage does not mean a desire to reduce net exposure, but rather includes a catch-up to above-expectation growth in 2023, the impact of currency moves on exposure levels and the desire to keep dry powder for 2023. Previously stated preference for net exposure growth in nat cat remains in place, Althoff indicated.

“It was the right moment in time to expand our retro placement,” Althoff said of the catch-up and forward-looking move “to create room to manoeuvre and help our ceding companies with their additional demand.”

The nat cat programme from January 1 now includes ca. $831 million in the group's K-cession securitisation, up from $450 million in the prior year programme.

The whole account excess of loss treaty – “a more challenging renewal” - is bumped to €387 million from €275 million. Hannover Re followed the trends it demanded from cedents on the reinsurance market and paid more while accepting higher retentions, Althoff said. A cat swap is maxed at €100 million, versus the prior year's $43 million.

Only the top layer aggregate excess of loss facility is down, at €71 million from €113 million in 2022. Hannover Re used this top layer limit to control costs on the programme as a whole. Overall, “our whole cost for retro coverage is not significantly higher,” Althoff said of the benefit of that change and the increase from K-Cession.

Hannover Re had been vociferously confident on its ability to secure retrocession coverage, despite widespread talk of the tightest market in arguably a generation. CEO Henchoz told markets in early October his group could secure basic coverage by early November, then turn opportunistic for added coverage. P&C reinsurance leader Althoff said by November that retro costs will be “more than outstripped” by improved reinsurance pricing.

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