Content

Hannover Re enhances its position for an upswing in the market

Further transfer of large-scale risks into capital market


Hannover, 2 April 2002:

With today's completion of its K3 transaction, Hannover Re has again utilized the capital markets for the securitization of catastrophe and other large-scale risks. K3 is a structured financing involving a so-called portfolio-linked securitization, comprising a variety of non-proportional reinsurance covers for natural perils (hurricanes and earthquakes in the U.S., wind-storms in Europe and earthquakes in Japan) and worldwide aviation business.

This transaction provides Hannover Re with an equity substitute in the amount of USD 230 million. U.S. and Japanese institutional investors are partners in this transaction, whose yield will be a reflection of the profitability of the securitized reinsurance business. Investors share Hannover Re's risk up to the maximum of their invested capital in case of loss from the securitized risks. The term of the transaction is three years with an option for the investors to renew for two more years.

Along with raising hybrid capital (by issuing a subordinated bond) in the amount of EUR 350 million in spring 2001 and an equity increase in December, we have enhanced our capital position by more than EUR 800 million over the last twelve months explains Wilhelm Zeller, Chairman of the Executive Board. With these measures we have created a solid foundation for exploiting the opportunities presented by the current strong upswing of the property/casualty reinsurance market to the maximum extent. Mr. Zeller emphasized that this transaction allows Hannover Re to flexibly adapt its capital position to the cycles of property/casualty reinsurance without potentially creating excessive capital at a future date where there is a softening in the current hard-market price level.

As early as 1994, Hannover Re pioneered the securitization of reinsurance risks by launching the first-ever such transaction dubbed Kover, which transferred natural catastrophe risks into the capital markets. The group extended its leading role in the area of alternative risk transfer in the following years through five more capital-market transactions for natural catastrophes (K2 and K2+) as well as for life reinsurance risks (L1 to L4).