Hannover Re announced today that it has transferred the EUR1 billion of reinsurance recoverable risks, or roughly $1.3 billion, to the capital markets.
Reinsurance recoverables, which are essentially the outstanding claims held by insurers against their reinsurers–or in this case, by reinsurer Hannover Re against its retrocessionaires–have been a substantial item on Hannover Re's balance sheet for many years.
In the early years of the decade, in fact, the reinsurer suffered ratings downgrades at the hands of rating agencies Moody's and Standard & Poor's because of the high levels of recoverables the company held in relation to its competitors and to its shareholders' equity.
In a statement, the reinsurer said that the recoverables are of a high credit quality and their level per company has always been strictly limited.
Hannover Re is substantially reducing the default risk associated with reinsurance recoverables by securitizing the risks and transferring them to the capital markets, the company said in a statement.
Chief Executive Officer Wilhelm Zeller said: "We assume that the rating agencies of relevance to our industry will consider this transaction–in quantitative and qualitative respects–positively."
"With this transaction, Hannover Re has effectively immunized itself against a potential credit risk," he continued in today's statement.
Hannover Re said the underlying portfolio, with a value of EUR1 billion, is comprised of exposures to insurers and reinsurers that are classified according to risk classes. The securities issued are split into four tranches in accordance with S&P's rating categories: "triple-A," "double-A," "A," and "triple-B." Payment to Hannover Re is triggered by the insolvency of a retrocessionaire.
The Hannover, Germany-based reinsurer, with gross premiums of roughly approximately $13 billion, is one of the world's largest reinsurance groups, transacting all lines of property-casualty, life-health and financial reinsurance as well as specialty insurance.
Currently, the company reported that its financial strength ratings include a 'double-A-minus" from S&P and an "A" rating from Oldwick, N.J.-based A.M. Best.
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