Saga's shares were up 3.1 percent at 115.3 pence at 0828 GMT, putting them among the top five percentage gainers on the pan-European Stoxx Index.

The deal, effective February next year, adds Hannover Re to Saga's current reinsurance partner NewRe, a unit of the world's largest reinsurer Munich Re, and replaces its existing quota share arrangement.

The agreement provides three years of cover on a rolling basis, Saga said.

"The increase to 80 percent (from 75 percent) in the reinsured share of our in-house underwriter's motor policy risk continues to reduce Saga's exposure to underwriting risk," Saga CEO Lance Batchelor, said.

Normally, in exchange for taking on an insurer's liabilities, the reinsurer receives a portion of the policy premiums. Through such agreements, insurers look to cut its exposure to the liabilities it has created by underwriting.

Peel Hunt said the agreement provides AICL with further capital relief and downside protection.

"This new program is a positive and shows that the underwriting quality within the insurance business remains high, albeit moving to 80 percent risk transfer gives the reinsurance panel more say in the underwriting strategy," Peel Hunt, which rates Saga at "buy", said.

Saga, which restructured its travel business after its tour operations were hit by the collapse of Monarch Airlines, said trading continued to be in line with the guidance given in December, when it cut its profit forecast.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Gopakumar Warrier)