Nephila Capital helps Universal to extraordinary reinsurance cost reductions

by Artemis on June 3, 2014

Universal Insurance Holdings, Inc. is one insurance group which is reaping the benefits of the current competitive and well-capitalised reinsurance market conditions as it reports ‘extraordinary cost reductions’ achieved at the mid-year renewals.

Universal Insurance Holdings, Inc. (NYSE: UVE) said that its two wholly owned insurance company subsidiaries, Universal Property & Casualty Insurance Company and American Platinum Property and Casualty Insurance Company, have achieved substantial savings and also enhanced its coverage from its reinsurance program at the June renewal.

Insurance-linked securities (ILS) capacity and collateralized cover has also played a part in Universal’s reinsurance renewal, with the largest ILS investment manager Nephila Capital cited as one of the largest participants in the insurance groups renewal this year. Universal said that the largest private participants in its reinsurance program for 2014-2015 include Nephila Capital, Odyssey Re, Everest Re, Renaissance Re, ACE Tempest Re and Lloyd’s of London syndicates.

Third-party reinsurance capital and collateralized reinsurance protection from Nephila will have played its part in allowing Universal Insurance Holdings to achieve some of the most competitive reinsurance pricing the firm will have seen in its history.

“We are pleased with the completion and outcome of the 2014-2015 reinsurance programs for our insurance companies,” commented Sean Downes, president and chief executive officer of the Company. “We are uniquely positioned in the marketplace with the reinsurance expertise we maintain in-house.”

“This year, we were able to realize extraordinary cost reductions within our reinsurance programs largely due to our exposure management actions and the diligent preparation by our reinsurance team. Not only did we achieve substantial savings within our programs over the 2013-2014 period, but we also made significant structural and coverage enhancements further protecting the insurance companies in preparation for the 2014 hurricane season,” Downes continued.

This is expected to be the experience of most Florida primary insurers. The buyers market conditions in the reinsurance and collateralized markets have allowed these companies to increase their protection while achieving some of the most attractive pricing seen in many years.

Smart primary insurers will have taken advantage of market conditions to maximise on their coverage, lock-in multi-year covers and expand their coverage through expansion of terms. Universal clearly feels it has benefited greatly from the competitive market environment.

Of course it’s not just Nephila Capital that has helped Universal achieve the low pricing and improved terms. The competitive traditional reinsurers will have competed heavily on price to participate in the program and matched the quotes offered by the ILS space. In fact, in some cases ILS specialists have been the ones matching prices proposed by the traditional market as the competitive desire to sign premiums has resulted in reinsurers outpacing ILS price declines on some programs.

For Nephila Capital, to become one of the larger providers of reinsurance protection to Florida market insurers such as Universal is testament to the ILS business model of collateralized reinsurance cover, funded by third-party investors, allowing it to exploit a reduced cost-of-capital and greater efficiencies than many traditional reinsurer counterparts.

As capital sources in reinsurance change the ILS specialists are likely to take ever larger shares of some peak peril zones, such as Florida. This year’s June reinsurance renewals have shown that the appetite to demonstrate the lower cost of ILS capital is strong and ILS specialists are happy to support the protection needs of even the largest primary companies. No wonder reinsurers are embracing third-party capital themselves.

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