Hannover Re and Stone Ridge strike innovative $100m retro cyber risk deal
Hannover Re, the third-largest reinsurer in the world, has partnered with asset manager Stone Ridge on ‘first’ proportional reinsurance structure for cyber risk.
Stone Ridge has provided $100 million in capital to support an innovative retrocession tool that “for the first time” enables the capital markets to participate directly in coverage of its cyber risks through a quota share cession.
The transaction covers cyber risks in Hannover Re’s worldwide portfolio and has a long-term orientation. The reinsurer noted that it enabled it to reconcile the complexity of a proportional cyber risk cession with the needs of a capital markets investor.
"For the first time, we were able to transfer cyber risks to the capital markets, and on a substantial scale, through a proportional reinsurance solution. This underscores our lead role as a bridge builder between the capital markets and the insurance industry," said Silke Sehm, Hannover Re’s executive board member responsibile for retrocession and insurance-linked securities (ILS).
"We want to build on this initial success and further expand our cooperation with capital markets investors, extending also beyond our own retrocessions."
Ross Stevens, chief executive officer of Stone Ridge, said: "Stone Ridge investors value our approach to sharing the proportional business of select, leading reinsurers, as we now add cyber risk to our more than USD 60 billion notional limit deployed since our inception in 2012. Cyber reinsurance represents a natural addition, and diversifying complement, to our other alternative investment franchises, as investors increasingly turn to Stone Ridge for investment outcomes superior to stocks and bonds.
"The market for cyber risk transfer is attractive given our expectation of high average returns and low correlation." Stevens added. "With this transaction, we are thrilled to expand our treasured partnership with Hannover Re, extending our trading relationship beyond catastrophe and life risks, and we are just getting started. We intend to meaningfully grow our cyber exposure throughout 2023 and beyond."
Henning Ludolphs, managing director for retrocession and capital markets at Hannover Re, said: "We are proud to have achieved this milestone together with Stone Ridge and see further considerable potential for the transfer of cyber risks to the capital markets using the entire ILS toolkit.
"Given the strong demand, our clients rightly expect us to make adequate cyber capacity available to them."
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