deals
leal of the month
What'sNewS Issue 7-July 1998 15
The dient: Hannover Ruckversicherungs-AG
The deal: DEM 100 million financing by Rabobank to Interpolis Reinsurance Services Ltd. Dublin
to cover reinsurance financing extended to Hannover Re.
The players: Rabobank London Branch; Interpolis Reinsurance Services Dublin; Interpolis,
Tillburg; Credit Committee, Frankfurt; RISConsulting, Boston, Massachusetts.
With gross premiums exceeding DEM
8 billion, Hannover Re is the
world's fifth largest reinsurance company.
And with 40 branch offices and
subsidiaries in 18 countries
worldwide and a AA+
Standard Poor's credit
rating, it has also been a
ioneer in the field of risk
„ecuritization, designed to
provide dramatic
improvements in capital
flexibility. Our London branch,
acting in concert with the
Dublin-based Interpolis
Reinsurance Services, was in
high-powered company
recently when it was asked to
help Hannover Re with the
world's first successful
securitization of life
reinsurance assets.
US, it must be charged to the insurer in
one lump sum in Germany before being
passed on to the reinsuring agent. This
regulatory reality poses a considerable
Scope for more synergies - Paul Howden (far left), Marcel
Salverda, Sarah Mason and Brendan Malley (right)
Our bid for the deal succeeded in
competition against Citibank and Chase
Manhattan. Initial contacts with
Hannover Re were handled by London's
Sarah Mason, Manfred Schneider of
rankfurt, Berend du Pon of UK
corporate finance, and credit analyst Paul
Howden. It was engineered as a
cooperative effort between Rabobank
International and Interpolis, represented
by Brendan Malley (Dublin) and Marcel
Salverda (Tilburg) under the overall
direction of Toon Bullens, managing
director of Interpolis Re in Tilburg. 'This
was very much a team effort from start to
finish,' remarks Sarah Mason, co-head of
London's securitization business.
The deal follows a pattern established in
the securitization of natural peril
catastrophe risks, and it may pave the
way for even more innovative structures,
(for example covering political risk). The
driving force behind this deal was the high
cost of setting up new life insurance
olicies in Germany. This cost, called the
life acquisition cost, must be paid
whenever a new policy is written. While
such costs can be written off over the term
of the policy in many jurisdictions like the
hurdle for companies like Hannover Re
whose business is rapidly expanding.
However, with the help of financing by
Rabobank International, and the
assumption of lapse and mortality risk by
Interpolis, Hannover Re can now pass this
cost on to the capital markets instead.
The multi-currency deal, valued at the
equivalent of up to DEM 100 million,
with possible further expansion at a later
date, will see our reinsurance subsidiary
buy 75 percent of specified reinsurance
assets from Hannover Re over the next
three years. The purchases will be funded
by an asset backed loan extended by the
London branch. RISConsulting Group
LLC of Boston acted as advisor to
Hannover Re and helped us to design and
structure the facility. Both Hannover Re
and Rabobank are 20 percent
shareholders in RISConsulting, the
brainchild of Derrell Hendrix, an expert
in insurance derivatives and securitization
techniques.
By arranging this deal, we have been able
to provide a strategically important
service to Hannover Re, which is anxious
to rapidly expand its life reinsurance
account base. Specifically, it has targeted
international life and health reassurance
as a key strategie growth area. The group
nearly tripled its worldwide gross
premium income from DEM 718 million
in 1995 to an estimated DEM 2.1 billion
this year, and growth rates of some 20
percent per annum are expected for some
time to come. The rapid increase in its life
portfolio will be driven in large part by
the fact that the Hannover group is the
exclusive insurance and reinsurance
partner for Germany's Postbank.
An immediate benefit of our close
collaboration with Interpolis on this deal
is the fact that it has opened strategie
doors at the most senior levels of
Hannover Re. 'Until now, we have simply
been buying reinsurance from them,' says
Toon Bullens. 'Now, we're mutually
exchanging business and double-gearing
our relationship. Lm quite convinced
there is scope for more synergies in the
future: they have much to teach us in
agricultural reinsurance in North
America, for example.'
The structure ultimately delivers Standard
securitization benefits - cash release and
cash relief- but uses a simple rather than
comparatively complex method of doing
so. Instead of transferring insurance
proceeds from 1 lannover Re to a special
purpose company, possibly funded in the
CP market, it
employs a
straightforward
reinsurance
contract paired
with a cash
financing facility.
'The unique
structure of this
deal has enabled
us to reduce their
costs and thus deliver value not only to
Hannover Re, which is a mutual
insurance company just as Rabobank is a
cooperative group, but also to their
customer base as well,' Bullens notes.
Both Mason and Bullens believe there is
considerable scope to replicate this novel
securitization solution for insurance
clients elsewhere in Europe - the positive
publicity has already generated several
expressions of interest - and they
encourage offices throughout the
Rabobank network to consider whether
similar deals might be of benefit to their
customers as well.
For more information, contact Brendan
Malley at Interpolis Reinsurance Services
Ltd. on +353 1 607 6121.
Manfred Schneider
