Hannover Re boosts capacity via securitization

HANOVER, Germany— Hannover Re Group has further boosted its capacity for writing currently highly priced U.S. catastrophe risk through another securitization.

The German reinsurance group freed up €600 million ($775 million) of risk-based capital last week through the planned $800m sale of its Praetorian specialty business to Australian insurance group QBE Insurance Group Ltd.

Equity analysts responded positively to this news stating that Hannover had managed to improve its risk profile and free up capacity for profitable ongoing reinsurance business in one neat deal.

The group followed up this deal, which is planned for closure in the second quarter, with the news that it has boosted the boosted the volume of last year's "K5" risk securitization to some $520 million.

This latest deal was placed with institutional investors in North America, Europe and Japan. The capital has been increased by $106 million and was provided by both new and existing investors.

Hannover Re said that existing investors used the latest K5 deal as an opportunity to reinvest their profits from the previous year. This securitization is planned to run until December 31, 2008.

The group said that it has also extended its traditional protection covers used to protect against peak exposures such as natural catastrophes and that it would therefore no longer need to make use of structured covers.

"With these latest transactions we have made our portfolio even more weather-proof. We are optimally placed to benefit from the further profitable market opportunities that will open up in worldwide catastrophe business going forward," Wilhelm Zeller, chief executive officer of Hannover Re, explained.

The portfolio assembled for the "K5" securitization comprises non-proportional treaties for property catastrophe, aviation and marine (including offshore) reinsurance.

Around 42% of this business is passed on to the investors, said the group.

It added that the new securitization transaction will enable the company to write more business while conserving its capital resources.

Earlier this week, Mr. Zeller also confirmed to equity analysts that he expects to report a group profit of about €480 million for 2006. This would represent a group return on equity of "well above" 15% and earnings per share of 4%.

Hannover Re will report on the recently completed year-end renewals experience on February 7 and announce its 2006 results on March 14.