Cat bond market to remain active through 2025: Hannover Re’s Althoff
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According to Sven Althoff, Member of the Executive Board for Property & Casualty at German reinsurer Hannover Re, the catastrophe bond market is expected to remain active throughout 2025, as it continues to attract additional capacity across the insurance-linked securities (ILS) market.
The reinsurer recently announced that it had increased its natural catastrophe retrocession protections at the January 1st, 2025, reinsurance renewals by EUR 100 million to a little more than EUR 1.2 billion, with growth in the aggregate excess of loss and whole account excess of loss covers more than offsetting a reduced K-Cessions sidecar for the year.
At the January renewals, Hannover Re increased its natural catastrophe retrocession in line with plan, with no changes made to the overall structure of the tower, however the firm did reduce proportional cessions to 33% and increase its non-proportional protection.
During a recent conference call, following the release of its 1/1 renewals outcome, Althoff addressed the 33% reduction, saying, “When it comes to K the 33% cession is right in our sweet spot. So we could have placed more, but that’s where we wanted to end up. There was certainly capacity available to place more, but at 33% we are very comfortable.”
Additionally, Althoff also discussed whether amid the strong cat bond rally, he sees investor demand for spots lower in reinsurance towers rising.
“On the cat bond side, this is a very active market place which continues to attract additional capacity, also from the ILS space. We are ourselves very active in providing transforming services on that side. So, from that point of view, as part of our ILS fee based activities, and we are participating in the increased issuance of those cat bonds.
“We expect that to continue also throughout 2025, but our experience so far has been that our ceding companies are using this to complement their traditional buying of reinsurance business rather than instead of buying on a traditional basis, and we don’t see any short term change in those dynamics.”
Althoff also commented on whether he believes that the cat bond rally has gone so far that the attractiveness to investors of K-Cessions, or other collateralized deals has now reached an inflection point.
He said: “I mean that, of course, very much depends on the risk appetite of the capital behind those underwriting decisions. With a proportional cession, you obviously, in absolute numbers, have much more upside as you are participating in the original risk from relatively low return-periods. While with most of the cat bonds, you are very much at the tail-end of the risk spectrum. So, you are exposed to severity and that is making your probability for loss very remote, but it’s also limiting your upside because the pricing you can get is obviously reflecting this.
Concluding: “So this can only really be answered by the investor base. Some find the full spectrum of cat more attractive than just the tail-end risk. But one thing is certain, there is enough capacity available for both solutions.”
Cat bond market to remain active through 2025: Hannover Re’s Althoff was published by: www.Artemis.bm
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