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

Hannover Re has developed an additional retrocession tool that for the first time allows the capital markets to participate directly in covering their cyber risks through the assignment of quotas. Longtime partner Stone Ridge is backing the transfer with $100 million in capital.

“For the first time, we managed 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 builder between capital markets and the insurance industry,” said Silke Sehm, whose scope of responsibility as a member of the Executive Board of Hannover Re includes retrocession and insurance-linked securities (ILS). “We want to build on this initial success and further expand our collaboration with capital market investors, expanding beyond our own retrocessions.”

In structuring this transaction, Hannover Re said it was for the first time able to reconcile the complexities of pro-rata cyber risk ceding with the needs of capital markets investors. The transaction covers cyber risks in Hannover Re’s worldwide portfolio and has a long-term orientation.

Hanover Re said the transaction represents another step in its own reinsurer protection strategy outside of 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.

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

“Stone Ridge investors value our approach to sharing the proportionate business of select, leading reinsurers as we now add cyber risk to our notional limit of more than US$60 billion that we have deployed since our inception in 2012,” Ross Stevens, Chief Executive Officer of New York City managed by Stone Ridge Asset Management.

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

“The cyber risk transfer market is attractive given our expectations of high average returns and low correlation. With this transaction, we are delighted to expand our valuable partnership with Hannover Re, expanding our trading relationship beyond catastrophe and non-life risks, and we are just getting started. “We intend to significantly increase our cyber exposure throughout 2023 and beyond,” he said.

“We are proud to have achieved this milestone together with Stone Ridge and see further significant potential for transferring cyber risk to the capital markets using the entire ILS toolkit,” said Henning Ludolphs, Managing Director Retrocession and Capital Markets at Hannover Re. “Given the high demand, our clients rightly expect us to make adequate cyber capacity available to them.”

Source: Hannover Re

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