Posted on 26 Jun 2009
Hannover Re, Germany's second-biggest reinsurer, is close to signing a life-reinsurance agreement in Hong Kong, its third deal this year to help life insurers boost capital.
"We are clearly seeing increasing demand for life reinsurance as it’s the best option life insurers have to strengthen their capital,” said Wolf Becke, head of Hannover Re’s life and health-reinsurance division. “Options such as raising capital or selling risks to the capital markets via insurance-linked securities are expensive and difficult.”
Insurers, hurt by about $243 billion in losses from the credit crisis, are seeking more reinsurance to protect capital and avoid selling new shares at depleted market valuations or downgrades by rating firms. Munich Re, the world’s biggest reinsurer, said last month it closed nine so-called capital- relief transactions this year, which may add more than 2 billion euros ($2.7 billion) to gross premiums annually, or about 40 percent of last year’s life reinsurance premiums.
Hannover Re has closed a “medium size” transaction in the U.S. and one in the U.K. in addition to the deal it’s closing in Hong Kong, Becke said, adding that “more are to be expected.”
Hannover Re calls such reinsurance deals, which help primary insurers bolster capital, block assumption transactions. Under such arrangements it pays a primary insurer a fee and assumes the risk of premium non-payment and claims on an insurance portfolio for a set period of time in return for a share of future premiums. The deals help primary insurers remove risk from their books, freeing up reserves to improve capital ratios.
Standard & Poor’s reduced its outlook on Hannover Re’s credit rating to “negative” from “stable” on June 2, citing the company’s “somewhat constrained financial flexibility,” possible earnings volatility in the non-life segment, and the “lack of track record” of the new management team. Chief Executive Officer Wilhelm Zeller will retire at the end of June and hand over to management board member Ulrich Wallin.
In addition to new reinsurance deals, Hannover Re has been buying existing life reinsurance contracts. Its biggest such acquisition was the purchase of a portfolio of Scottish Re Group U.S. insurance policies that covers life business reinsured by ING Groep NV in January, Becke said.
The ING policies contributed a one-off gain of 80.2 million euros to Hannover Re’s first-quarter earnings and will account for about $1.2 billion in annual premiums. The deal will add more than $30 million to profit each year for the next five years, it has said. The profit outlook from the ING acquisition is “fully in accordance with expectations and we haven’t seen any negative surprises on the claims side yet,” Becke said.
While Hannover Re “could do more deals of the dimension of the ING transaction” and remains interested in further acquisitions, it will focus on integrating the ING business for the next year to 15 months, Becke said.
Becke said he wouldn’t rule out acquiring “at a later stage” a portfolio of U.S. life reinsurance contracts it manages for Bermuda-based Scottish Re. The contracts have annual premium income of about $500 million, he said.
Hannover Re’s life and health-reinsurance gross written premiums rose 1.7 percent to 3.13 billion euros last year, representing about 39 percent of Hannover Re’s total premium income. The unit’s premium income is expected to increase about 35 percent this year, boosted by the ING acquisition.