Hannover Re transfers cyber risks to the capital markets via proportional reinsurance

Hannover Re has developed an additional retrocession tool that, for the first time, enables the capital markets to participate directly in the coverage of their cyber risks through a quota share cession. Long-time partner Stone Ridge is supporting the transfer with a capital of USD 100 million.

“For the first time, we were able to transfer cyber risks to the capital markets, and at a significant scale, through a proportional reinsurance solution. This underlines our leading role as a bridge between the capital markets and the insurance industry,” said Silke Sehm, whose responsibilities as a member of Hannover Re’s executive board include retrocession and insurance-related securities (ILS). “We want to build on this initial success and further expand our collaboration with capital market investors that also extends beyond our own retrocessions.”

In designing this transaction, Hannover Re said, for the first time, it was able to reconcile the complexities of a proportional cyber risk assignment with the needs of a capital market 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 extreme mortality coverage for the life and health reinsurance business group to the capital markets in regular tranches since 2013.

Hannover Re placed the world’s first coverage in ILS business in 1994. With a transferred volume of around €8 billion (US$8.7 billion) in 2022, Hannover Re ranks among the largest providers in the ILS market.

“Stone Ridge investors value our approach to share 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, CEO of New York. City-based Stone Ridge Asset Management.

“Cyber ​​reinsurance represents a natural complement and diversifying addition to our other alternative investment franchises as investors increasingly turn to Stone Ridge for investment performance superior to stocks and bonds,” Stevens added.

“The cyber risk transfer market is attractive given our expectation of high average returns and low correlation. With this transaction, we are excited to expand our valued partnership with Hannover Re, expanding our trading relationship beyond catastrophe and life risks, and we are equally “We intend to increase our cyber exposure meaningfully through 2023 and beyond,” he said.

“We are proud to have achieved this milestone together with Stone Ridge and see further significant potential for the transfer of cyber risks to the capital markets using the full ILS toolkit,” said Henning Ludolphs, managing director of decline and capital markets at Hannover Re. “Given the high demand, our customers rightly expect us to provide them with sufficient cyber capacity.”

Source: Hannover Re


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