HANNOVER, Germany, April 2, 2002 (PRIMEZONE) -- With today's completion of its "K3" transaction, Hannover Re (GER:HNR) 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 U.S. $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" explained 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").
Hannover Re, with gross premiums of EUR 8.3 bn. in 2000, is the fifth-largest reinsurance group in the world. It transacts all lines of property/casualty, life/health and financial/finite-risk reinsurance as well as program business. It maintains business relations with more than 2,000 insurance companies in over 100 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices in 19 countries. The American rating agencies Standard & Poor's and A.M. Best have awarded Hannover Re a rating of AA ("Very Strong") and A+ ("Superior"), respectively.