Hannover Re’s insurance-linked securities (ILS) market facilitation activities continued to expand in 2024, with the number of collateralised reinsurance participations fronted for investors rising, while its catastrophe bond fronting also grew to a new record level.Hannover Re has been active in the insurance-linked securities (ILS) market for many years, as sponsor of securitized risk transfer transactions, a risk-sharing partner for third-party investors through its K-Cessions quota share sidecar, and increasingly in recent years as a facilitator that helps cedants access capacity from the capital markets and assists institutional investors or ILS funds to access risk.On the catastrophe bond side, where Hannover Re fronts the capital markets as an intermediating reinsurer for sponsors looking to enter into cat bond transactions, 2024 saw the reinsurance company transfer around US $4 billion in exposures to the capital markets across 13 cat bond deals, covering a range of catastrophe perils.That was a record year for the cat bond fronting business at Hannover Re, up from 2023 when the company put the full-year figure at $2.8 billion in cat bonds placed where it had played a role in facilitating the risk transfer and access to capital market investors for clients.

But, it is in collateralised fronting arrangements, where Hannover Re facilitates the transfer of risks assumed from ceding companies to institutional investors using structured entities, that the largest figures still come into focus for 2024 as the company grows its stature as a key facilitator in that more private ILS marketplace.Hannover Re enjoys benefits from these fronting and risk transformation relationships through incremental earnings, in terms of fees, by helping fund managers and investors access sources of reinsurance risk, as well as by growing its importance in the market and with its ceding clients.As we’ve said before, one of the best measures for how this business has grown for Hannover Re is in the amount of collateral furnished to trust accounts, to support investor and ILS fund manager’s participation in and obligations to the underlying reinsurance arrangements.

For 2023, as security for potential reinsurance obligations from ILS transactions, which was a significant increase on the EUR 3.323 billion reported for the same purposes for full-year 2022.After the first-half of 2024, .Now, for full-year 2024, Hannover Re has again reported that figure increasing, as held in single trust funds the reinsurance company reports that almost EUR 7.19 billion was furnished by investors as security for their potential reinsurance obligations from ILS transactions.

So that key metric for Hannover Re’s activities in facilitating and fronting for ILS capital and investors had increased by approximately 41% year-on-year by the end of 2024, driving home the key and growing role the reinsurer plays in the ILS marketplace.It’s hard to infer from this exactly how new collateralised fronting business changed in 2024, but Hannover Re said, “The volume of collateralised reinsurance, which remains by far our largest segment in the ILS sector, remained stable in the year under review on a high level.” Of course, the funds held in trust for collateralised reinsurance obligations are not disbursed immediately on year-end and can be held for any development purposes related to a contract and potential losses, so the growth percentage should not be construed as growth in fronted reinsurance participations alone.But the fact it’s rising at this pace reflects the importance of Hannover Re’s position as a leading front for the ILS fund market today.

Later, we were told by a company spokesperson that the number of reinsurance participations fronted by Hannover Re had actually increased in 2024, which shows that this business keeps growing for the reinsurer.Another metric that helps to explain hannover Re’s stature in the ILS market comes through the value ascribed to the ceded exposure limit of underlying retrocession agreements related to traditional and ILS covers transacted through structured entities including its Kaith Re vehicle, which are passed on to institutional investors in securitised form.Here, Hannover Re reports almost EUR 7.69 billion of ceded exposure limit at the end of 2024, up from EUR 6.79 billion a year earlier.

Finally, specifically in collateralised fronting for ILS, Hannover Re reported the ceded exposure limit of the underlying retrocession agreements at just over EUR 5.4 billion at the end of 2024.Interestingly, this figure is down on the EUR 6.278 billion as of the end of 2023.Here, Hannover Re assumes an amount of tail risk on these contracts and that uncollateralised exposure and reports that as of the end of 2024 the maximum risk of loss from the uncollateralised exposure limit amounted to EUR 673.1 million, down from EUR 1.85 billion, while the expected loss on a modelled basis in a worst-case scenario of 10,000 years amounts to at most EUR 31.9 million, again down from EUR 42.8 million.

Which you might think implies a reduction in activity in that collateralised fronting area, but on reaching out to the reinsurer a spokesperson explained that Hannover Re has made some adjustments in its collateralised fronting arrangements.The Hannover Re spokesperson told us, “We offer various collateralised fronting concepts.These concepts have different impacts on what amounts we consider as ceded exposure.

We had a shift towards concepts where we provide a stop loss for tail risk.Here, we only report the collateralised portion up to the attachment point of the stop loss as the retroceded limit.” Also saying on collateralised fronting at Hannover Re, “Overall, our business is fairly stable, in terms of premiums and volumes,” but added that, “The actual number of reinsurance participations fronted has actually gone up.” Which again drives home the growing role Hannover Re plays as a key facilitator for the ILS fund market, in fronting a growing number of participations on reinsurance arrangements for the capital markets..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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