Hannover Re to Buy, Sell More Insurance-Linked Notes, CFO Says

Hannover Re doubled its purchases of insurance-linked securities such as catastrophe bonds last year and plans to keep investing in and issuing such products. “While the second half of 2008 was difficult for insurance- linked securities, we are still committed to the market,” Chief Financial Officer Elke Koenig said in an interview. “We will continue to use the capital markets to transfer our own and our clients’ risks and we will also invest further in insurance-linked securities ourselves.” Sales of new insurance-linked securities dried up last year as investors retreated from all but the safest assets following the Sept. 15 collapse of New York-based Lehman Brothers Holdings Inc. The investment bank’s bankruptcy caused four catastrophe bonds to be downgraded by Standard & Poor’s. New issuance of so-called cat bonds and sidecars declined to $3 billion in 2008 from $9.4 billion a year earlier, according to a report by Aon Corp. the world’s largest insurance broker. Sidecars are special-purpose vehicles that let investors participate in parts of an insurer’s portfolio. “Those who had to or wanted to exit from insurance-liked investments actually found the secondary market was working reasonably,” Koenig said. “That market seemed to be partially more liquid than the traditional bond market.” Hannover Re, which has been investing in insurance-linked securities for years, had more than doubled its portfolio of such assets to about 150 million euros ($200 million) by the end of 2008, Koenig said. “We invested around 100 million euros in the market in 2008, most of that in the second half,” the CFO said. “We are probably investing in the same risks as in our own reinsurance business, and thus our ILS portfolio shouldn’t exceed 300 million euros or 400 million euros in the longer term.” New Securities Hannover Re said last week it sold 100 million euros of life reinsurance risks in a so-called embedded-value securitization that included unit-linked life and annuity lines from European clients. It last sold such a portfolio in 2006, raising the same amount. “The structure of this deal was pretty much the same as in the previous one, while pricing was a bit less attractive,” Koenig said. “Such straightforward reinsurance transactions will always be around,” while more complex deals have disappeared for now, the CFO added. Hannover Re’s next comparable transaction may come in 2010 or 2011, Koenig said. The company is Germany’s second-biggest reinsurer. Reinsurers help insurers shoulder risks for clients.

Source : Bloomberg.com