Hannover Says Cat Bonds Are Too Costly After Lehman

Hannover Says Cat Bonds Are Too Costly After Lehman: "Hannover Re, Germany’s second- biggest reinsurer, said it doesn’t plan to renew $200 million in securities linked to natural disasters that expired in December because prices are too high.

“The three catastrophe bonds we saw since the Lehman collapse have doubled in prices compared to the times before Lehman,” Ulrich Wallin, a management board member, said today at the Hanover-based company’s annual analyst conference. “We are not willing to renew our Kepler Re bonds in those conditions and will wait and see how the market develops.”

The market for catastrophe bonds was hurt by Lehman Brothers Holdings Inc.’s collapse in September because some deals relied on the bank to guarantee returns on securities backing the notes. One issuer, Allstate Corp.’s Willow Re Ltd., didn’t make a full interest payment last month, the second catastrophe bond to default in a decade.

Hannover Re sold the Kepler Re securities in March 2007 to protect against losses from catastrophic events worldwide, according to a statement on the company’s Web site published at the time of the transaction. The deal expired in December 2008.

Scor SE, France’s biggest reinsurer, sold the first catastrophe bond since Lehman’s failure in February, a $200 million transaction to transfer risk on U.S. earthquakes and hurricanes. Paris-based Scor’s Atlas V Capital Ltd. deal paid interest of 11.5 percentage points more than the London interbank offered rate on a $100 million portion, according to data compiled by Bloomberg. Two $50 million notes will pay 12.5 and 14.5 percentage points over Libor, the data showed.

Aspen Insurance Holdings Ltd.’s Ajax Re Ltd., another of the four catastrophe bonds that used swaps with Lehman, is likely to default on an interest payment this month, Standard & Poor’s said in a March 3 statement."

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