Germany’s Hannover Re announced that Eurus Ltd., a special purpose vehicle, has issued a CAT bond with a volume of $150 million, giving the reinsurer windstorm protection with immediate effect for a term of approximately three years, covering seven European countries (Belgium, Denmark, France, Germany, Ireland, Netherlands and the United Kingdom). Hannover Re noted that this marks the “first time it has used a traditional CAT bond in its array of risk management tools.” The bond has been purchased by institutional investors in Europe and North America.
“Through ‘Eurus’ we have been able to transfer one of our peak natural catastrophe exposures to the capital market while at the same time successfully enlarging our investor base”, noted CEO Wilhelm Zeller. “Thanks to this transaction we have expanded and hence diversified still further our risk management with the addition of a new tool. At the same time we have succeeded in profitably protecting our capital resources.”
Zeller added that although Hannover Re has “already transferred natural catastrophe risks to the capital market on six previous occasions in the form of private placements, ‘Eurus’ is the first transaction where the bond certificates can also be traded on a secondary market.”
The bond, which has a parametric trigger structure, protects Hannover Re against windstorm events that attain a certain predefined wind speed. It has been rated “BB” by the rating agency Standard & Poor’s.
The world’s global reinsurers are increasingly turning to Cat Bonds to make up for the squeeze on capital, especially in the retrocession market. In the absence of affordable retrocession coverage, they offer a reasonable alternative. Guy Carpenter’s report on the January reinsurance renewals noted: “A record amount of nearly $2 billion of catastrophe bonds were issued in 2005, and this segment should continue to thrive in 2006.”
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