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Hannover Re - L2 Life Reinsurance Securitization


Hannover Re was considering the continued expansion of its life, accident & health and annuity reinsurance business in Western Europe (including Scandinavia) and North America, this time by acquiring large blocks of existing business in what are know as bock assumption transactions (BATs). BATs are transactions whereby whole blocks of business are essentially purchased for an up-front cash payment, which the purchaser earns back by collecting future profits on the block in question. Similar to the L1 transaction, BATs require substantial amounts of up-front financing resources and have an adverse impact on P&L and surplus at the time of acquisition.

Client Need

Hannover Re mandated RISConsulting to assist it in developing a financing and risk-transfer solution (the L2 transaction). As with L1, the desired solution was one that acquired financing to offset the up-front L2 business financing burden and that addressed the undesirable accounting effects (P&L and surplus) associated with BAT business for the 1998, 1999, and 2000 years of account.

The Solution

Under the L2 transaction, Interpolis Re again provided Hannover Re with quota-share reinsurance for three underwriting years of account and obtained financing from Rabobank, which syndicated 50% of the financing facility to Helaba Bank. The structure provided for repayment of the financing through the reinsurer receiving its quota share of profits generated by the L2 business assumed.

The Result

As a result of the structure, Hannover Re raised DEM 250 million in non-recourse financing in the form of a multi-year reinsurance contract to support the growth of its BAT business. In the process, it also achieved its criteria of transferring risk and relieving BAT-related balance sheet and P&L strain.

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