For global reinsurer Hannover Re, the business of collateralized fronting, where the company fronts reinsurance cedents for ILS investors and funds, is seen as a very important element of its business and an area of growth, executive Thorsten Steinmann said this week.
Speaking during a briefing held at the Baden Baden reinsurance meeting in Germany, Steinmann discussed innovation at Hannover Re, with its insurance-linked securities (ILS) activities one area of focus.
Thorsten Steinmann is the Member of the Hannover Re Executive Board for Property & Casualty and will be the CEO of German subsidiary E+S Rück from 2025.
The Baden Baden briefing was the first time Steinmann has spoken on topics such as Hannover Re’s role in the ILS market, having only joined the company earlier this year.
He explained that he still thinks of ILS as an example of innovation, “because we are just such a huge cat bond market and we are a leading supplier for many many years in this cat bond space.”
“Last year we have done 10 cat bond transactions, where we supported our clients to go through the capital market and this year alone in the first six months in 2024, we have also structured 10 cat bonds in the first six months of the year, with a limit of around 3.4 billion,” he continued.
Moving on, Steinmann then spoke about the fronting role Hannover Re plays in the ILS market.
He said, “One other area of innovation, is what I call collateralized fronting. We have fronted 1,800 reinsurance contracts for 12 investors.”
Adding that, “We are fronting so many deals for investors who want to get access to the nat cat space and to the capital market.
“The trend is rising. It’s a very important element for us and from my perspective, ILS and collateralized fronting is growing.
“It’s a market which is here to stay and helps to continue reducing the protection gap.”
As we reported before, Hannover Re reported that the amount of collateral furnished by investors as security for potential reinsurance obligations from ILS transactions it had fronted had risen again in the first-half of 2024, as too had its activity in fronting for catastrophe bond sponsors.
It’s an increasingly important area of the reinsurers’ business and one that will be driving a significant source of fee income for the company, as well as synergies with its own balance-sheet deployment.
Steinmann also spoke about parametric risk transfer, saying that while it is still a “super small business” it is an important and growing one.
“Another example of innovation is parametric solutions,” he said. “It is still a niche product but it’s growing.
“We are doing deals with our clients. We are doing deals with NGOs, with public private partnerships with public partners, etc, and the number of deals that we can do in this space is significantly going up, and all this will also help us to narrow down the protection gap, always in combination with traditional reinsurance, of course.”
