Hannover Re Capital Partners investor conversations “very positive” – Sehm

Having begun the process to establish a Bermuda based insurance-linked securities (ILS) platform named Hannover Re Capital Partners, global reinsurance firm Hannover Re is having “very positive” investor conversations so far, Executive Board Member Silke Sehm said today in Monte Carlo.

Speaking during a Hannover Re media briefing at the Rendez-vous this morning, Sehm explained that the reinsurer sees Hannover Re Capital Partners (HCP) as a complement to its traditional business and its already expansive offerings in the insurance-linked securities (ILS) space. But does not see the venture as in conflict with its other ILS market activities or the firms it partners with there.

“You know that we are very active in insurance-linked securities, doing cat bond transformer business, also collateralized fronting, and we like to complement to our existing ILS strategies, Sehm explained.

Continuing, “On that point, we plan to set up an underwriting agency named Hannover Re Capital Partners, HCP, that we intend to write non-proportional nat cat business, with a back-up of third-party capital from investors.”

We reported on the coming launch of Hannover Re Capital Partners (HCP) last month, explaining that it marks the reinsurance firms first venture into the ILS investment management arena.

It’s a way for Hannover Re to round-out its offering to ILS investors and the market, while creating a new avenue to manage and deploy third-party capital to augment its business activities.

Sehm further stated this morning in Monte Carlo that, “Currently, we are in good talks with investors. They seem to be very positive. And so, then we will apply for regulatory approval, then start with that activity in our ILS space as well.”

Asked about the growth potential for HCP and how much in assets it could manage on behalf of third-party investors, Sehm would not be drawn.

She explained, “We do not have a concrete size in our mind. So the idea is to start in a typical Hannover Re way, slow, maybe with one or two investors right in the beginning.

“So, we are currently in very good talks with one, maybe two investors. But I cannot comment on the concrete capital amount, which might be so that it fits to our portfolio I think step by step.”

Asked again whether it could be in excess of $500 million, Sehm replied, “No, not in the beginning. The plan is for in the future to also increase those activities in a similar way as you have seen it in our other ILS activities.”

She suggested it will be a slow and steady build-up as Hannover Re evaluates the HCP opportunity, but also said it could eventually expand beyond just property catastrophe reinsurance risks.

“We can imagine also other lines in the future, but we would like to start with property nat cat, the non-proportional book first,” Sehm explained.

Asked about why Hannover Re has looked to step more into the management of assets for investors, matching them with risks it sources and underwrites, Sehm said it was the missing segment in the reinsurers ILS activities.

“In our ILS activities, we currently have four segments, the fifth segment is missing. So, with our knowledge, our underwriting skills and expertise we have on the nat cat side, we think we can also be active there. So, this is the fifth missing part, I would say,” Sehm said.

“So, it’s a pure ILS activity, but we are doing this out of Bermuda, because there we do our all our nat cat non-proportional underwriting.”

Going into more detail on the benefits for a large global reinsurance firm like Hannover Re to move further into the ILS asset management space, Sehm said, “What does it basically mean for us? It’s fee income we are generating, and we are bringing our expertise to the capital market. We are a facilitator there, and when writing the nat cat business on our own balance sheet, we take the high risk, high return, so to speak, and it’s a high burden on our balance sheet. But with that additional add on, we transform volatile business into fee income in a very neat and effective way, because we do the underwriting on the nat cat book anyhow.”

Sehm also highlighted that Hannover Re does not see HCP as a potential conflict for other ILS managers for which it currently fronts reinsurance business on a collateralized basis.

“As I said earlier, we are doing the collateralized fronting business activity since 17 years. So, we are also in talks with our collateralized partners. They are aware of our activity and as I said earlier, this is just to complement our ILS activities.

“We do not see this in contradiction or that there is a conflict.

“I mean, we are writing nat cat business on our own balance sheet. We do collateralized fronting, and we will do this with our third-party capital partner activities in the future. So, it’s quite similar, and it’s extending our activities,” she explained.