Insurers and structurers are looking at a variety of synthetic securitizations of insurance risks which would follow on from last week's first collateralized debt obligation backed by re-insurance recoverables. Hannover Re, the German reinsurance group, and SG Corporate & Investment Banking were behind the CDO, dubbed Merlin CDO 1. It references recoverables, or the outstanding claims held by reinsurers against their clients.
Firm and rating agency officials said they are working on similar deals in the U.S. One banker noted his firm is working with re-insurers to price the value of protection on dispute risks that arise between re-insurers and their clients. Merlin only referenced credit risk. Dispute risk is harder to quantify as reinsurance contracts vary widely and dispute claims can not be easily predicted. "It appears that the Hannover structure made a point to divorce dispute risk from credit risk, but re-insurers are definitely interested in offloading more costly dispute risks," noted a dealer at a rival firm in the U.S.
