United Fire gets more reinsurance at better terms and lower cost

Evidence of the buyers market for reinsurance continues to emerge, with the latest insurer to reveal how the current reinsurance renewal pricing environment has benefited them being multi-line primary player United Fire Group.

A week ago we wrote about two examples of insurers that had benefitted from the current reinsurance market pricing environment created by recent low-levels of catastrophe losses and the inflows of third-party capital into the market.

These factors have converged to bring about some of the best reinsurance buying conditions in years and primary insurers are taking advantage of pricing and the abundant availability of both traditional and alternative reinsurance capital to increase their protection, buy more cover and ease the terms of their reinsurance agreements.

The United Fire Group example really demonstrates just how attractive these savings are and how much insurers have been able to push terms on their reinsurance coverage, benefitting their protection. United Fire Group has expanded its reinsurance cover at much improved terms and all at a lower cost than its previous renewal.

Randy A. Ramlo, President and CEO at United Fire Group, discussed the insurers renewal terms during its recent fourth-quarter earnings call. As on January 1st United Fire Group took advantage of reinsurance market conditions and expanded its catastrophe reinsurance program, Ramlo explained.

United Fire Group has added $50m of additional catastrophe reinsurance protection at the renewals as well as relaxing the terms imposed by its reinsurers. It has achieved the relaxation of terms by expanding the hours clause on its catastrophe protection from 72 hours to 96 hours and securing the removal of a 5% co-participation on the program as well.

United Fire Group has also improved its core reinsurance coverage, outside of its catastrophe program. It increased its maximum any one life limit to $20 million, which Ramlo said helps it to mitigate its exposure to severity losses in its workers compensation book and also negotiated more favourable reinstatement terms.

Adding all of these reinsurance enhancements together and its clear that United Fire Group has much more robust protection in place for 2014 and that its reinsurers have taken on much more risk from the insurer.

The expansion of its catastrophe reinsurance layer by $50m and all of the improvements to terms and conditions on both its catastrophe and core reinsurance programs have not cost United Fire Group an extra cent. In fact Ramlo said that even with all these enhancements the insurer has still saved money on its renewal.

This is indeed a buyers market and reinsurers are clearly offering significant sweeteners to primary insurer clients to get the reinsurance contracts signed. How this affects the market should we see a heavy year of losses remains to be seen, but at terms like this there is a slight risk of somebody taking on more risk than is perhaps wise.

A heavy year of catastrophe losses would certainly highlight any reinsurers, ILS or collateralized reinsurance players who have let pricing slip and terms be relaxed too far. When pricing comes down so rapidly as it has this year and competition is so high that discounts and relaxation of terms are offered, discipline in risk selection and underwriting tolerances become ever more important.