Hannover, 6 March 2007:
In the first transaction of its type Hannover Re has placed on the capital market an aggregate XL cover of USD 200 million on its worldwide natural catastrophe business. The company has thus further improved its risk management and rounded off its programme of protection cover.
'Kepler Re', the special purpose entity set up for this transaction, protects Hannover Re's retention of roughly 58% from the natural catastrophe business included in its 'K5' capital market transaction. The cover attaches for an aggregated 83-year event; it is exhausted if a 250-year accumulation is reached. Within this spread 'Kepler Re' assumes approximately 48% of losses incurred for the 'K5' natural catastrophe portfolio, while the remaining 10% are retained by Hannover Re. It is of no relevance here whether the events in question involve numerous small or just a few large losses. 'Kepler Re' is funded in an amount of USD 200 million by capital contributions from investors.
Under 'K5' Hannover Re cedes to investors roughly 42% of its worldwide natural catastrophe business included in the transaction. The upper range of the remaining retention is now also protected at an attractive price. "We have thus protected our portfolio better than ever against expensive catastrophe losses and basic claims", Chief Executive Officer Wilhelm Zeller explained. "As a result, we enjoy unprecedented independence from the traditional retrocession market."
The 'Kepler Re' investors receive a quarterly return on their invested capital that is commensurate with the risks. There is no credit risk for Hannover Re because the capital contributions are collateralised.
The transaction came into effect on 1 March 2007 and runs until December 2008.