Hannover Re has developed an additional retrocession tool that for the first time enables the capital markets to participate directly in coverage of its cyber risks through a quota share cession. Longstanding partner Stone Ridge is supporting the transfer with capital of US$100 million.
“For the first time, we were able to transfer cyber risks to the capital markets, and on a substantial scale, through a proportional reinsurance solution. This underscores our lead role as a bridge builder between the capital markets and the insurance industry,” said Silke Sehm, whose scope of responsibility as a member of Hannover Re’s Executive Board includes retrocession and insurance-linked securities (ILS). “We want to build on this initial success and further expand our cooperation with capital markets investors, extending also beyond our own retrocessions.”
In designing this transaction, Hannover Re said, for the first time, it was able to reconcile the complexity of a proportional cyber risk cession with the needs of a capital markets investor. The transaction covers cyber risks in Hannover Re’s worldwide portfolio and has a long-term orientation.
Hannover Re said the transaction provides another step in the reinsurer’s own protection strategy outside the company’s traditional retrocession program for catastrophe risks. Among other things, Hannover Re has brought an extreme mortality cover for the life & health reinsurance business group to the capital markets in regular tranches since as long ago as 2013.
Hannover Re placed the world’s first cover in ILS business in 1994. With a transferred volume of around €8 billion ($8.7 billion) in 2022, Hannover Re ranks among the largest providers in the ILS market.
“Stone Ridge investors value our approach to sharing the proportional business of select, leading reinsurers, as we now add cyber risk to our more than US$60 billion notional limit deployed since our inception in 2012,” Ross Stevens, chief executive officer of New York City-based Stone Ridge Asset Management.
“Cyber reinsurance represents a natural addition, and diversifying complement, to our other alternative investment franchises, as investors increasingly turn to Stone Ridge for investment outcomes superior to stocks and bonds,” Stevens added.
“The market for cyber risk transfer is attractive given our expectation of high average returns and low correlation. With this transaction, we are thrilled to expand our treasured partnership with Hannover Re, extending our trading relationship beyond catastrophe and life risks, and we are just getting started. We intend to meaningfully grow our cyber exposure throughout 2023 and beyond,” he said.
“We are proud to have achieved this milestone together with Stone Ridge and see further considerable potential for the transfer of cyber risks to the capital markets using the entire ILS toolkit,” said Henning Ludolphs, managing director for Retrocession and Capital Markets at Hannover Re. “Given the strong demand, our clients rightly expect us to make adequate cyber capacity available to them.”
Source: Hannover Re
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