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Hannover Re draws on capital market to boost underwriting capacity

Hannover, 3 February 2006:

Hannover Re has again used the capital market to obtain underwriting capacity for catastrophe risks. Labelled "K5", the transaction – which represents a capital substitute worth USD 370 million for Hannover Re – is the company's highest-volume risk securitisation to date. It was placed primarily with institutional investors in North America and is initially limited to a term of three years.

"With this transaction we are providing against the anticipated contraction and price inflation on the retrocession markets and securing the underwriting capacity needed to share in the profitable market opportunities that will open up in the years ahead", Chief Executive Officer Wilhelm Zeller explained. Demand for property and marine reinsurance covers has risen dramatically in the aftermath of last year's severe natural disasters. The portfolio assembled for the "K5" securitisation consists of non-proportional treaties for property catastrophe, aviation and marine (including offshore) reinsurance.

Hannover Re is a leading provider of reinsurance covers in property catastrophe, aviation and offshore business. The new securitisation transaction will enable the company to write more business while conserving its capital resources. As part of its efficient capital management Hannover Re has been using the securitisation of insurance risks as an equity substitute for some years now. These transactions enable the company to keep its cost of capital low and facilitate an increased return on equity. Investors enjoy extremely attractive returns if the loss experience of the covered portfolio is normal. Hannover Re completed the world's first risk securitisation in 1994. "K5" is the sixth such transaction. Together with Hannover Re's life and health reinsurance transactions this is the company's eleventh risk securitisation to date.