New deal: insurers are finding innovative ways to spread risk to capital markets and investors.(Reinsurance/Capital Markets: Reinsurance Recoverables)

Insurers are continuing to find innovative ways to use capital markets and financial institutions other than insurance companies to spread their risk.

Aspen Insurance Group Holdings recently completed what could be a first-of-its-kind transaction with Deutsche Bank to protect itself from defaulting reinsurers. Hannover Re finalized an innovative derivatives deal in lieu of buying traditional retrocessional coverage. And Benfield Group has teamed up with a bank to market a product that aims to cover reinsurance recoverables.

"There's been a good amount of chatter on the market about recoverable covers," said Rob Bredahl, president of Benfield Inc.

Aspen Insurance Group: Problem Solved

Julian Cusack, chairman and chief executive officer of Aspen Insurance Ltd., the Bermuda-based operating company of Aspen Insurance Group, said the goal of its transaction was to reduce the company's exposure to the risk of one or more of its reinsurers defaulting.

At the end of 2005, after two heavy years of hurricane losses, Aspen was carrying more than $1 billion in reinsurance recoverables on its balance sheet. In its annual U.S. Securities and Exchange Form 10-K for 2005,Aspen reported its reinsurance recoverables had increased to $1.19 billion from $198 million, although they were reduced to $468 million by year-end 2006.

"Looking back through the history of the property/casualty sector, there have been …