Universal expands reinsurance cover for 2016, Nephila assists

by Artemis on June 3, 2016

Florida domiciled insurer Universal Insurance Holdings has completed its 2016-2017 reinsurance programme, again noting ILS manager Nephila Capital as a key participant. The insurer also added additional multi-year coverage, and reduced its other states retention to $5 million.

Universal continues to show a focus on efficiency and conservatism as expansion in both capital and business has helped the insurer enter the 2016 hurricane season in its strongest ever position, according to Chief Executive Officer (CEO), Sean Downes.

The completion of its 2016-2017 reinsurance placements for both of its wholly owned subsidiaries, Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC), again featured Nephila Capital as a key player.

Along with Nephila, the largest insurance-linked investment manager in the world, other key participants include Everest Re, Renaissance Re, Chubb Tempest Re, and Lloyd’s of London syndicates.

Similar to the firm’s 2015-2016 reinsurance placement, Universal again increased its multi-year coverage for this year’s programme, adding an additional $100 million of capacity. In line with its focus on conservatism the Florida-based insurer also reduced retentions for the 2016 hurricane season.

“This year, our primary focus was to add additional conservatism to the UPCIC reinsurance program, a goal we successfully achieved by reducing our retention for catastrophe losses involving states other than Florida to $5 million and securing over $100 million of additional multiple-year catastrophe capacity,” said Downes.

The primary insurer also managed to increase its top layer reinsurance coverage for a single Florida event to $2.4 billion while maintaining the same $35 million catastrophe retention for a Florida loss, utilising a reinsurance budget similar to last year, explained Downes.

“By way of illustration, a $35 million loss would represent less than 13% of UPCIC statutory surplus as of March 31st, 2016 and a $5 million loss would be less than 2%,” explained Downes.

This is testament to the continued lower-cost of reinsurance capital that was seen in 2015 and has persisted into 2016, as rates continue to decline at renewals, albeit at a slower rate in more recent quarters than seen last year.

The lower-cost, more efficient flow of reinsurance capital available to buyers has clearly benefitted Universal, helping it to expand the top of its reinsurance tower for a single Florida event, a move that also suggests the insurer isn’t being complacent despite this being the eleventh year without a major landfalling U.S. hurricane.

With Nephila being a large player in the insurance-linked securities (ILS) space, it’s certain that the increased efficiency and additional multi-year catastrophe coverage achieved was supported by Nephila’s and other ILS players utilisation of efficient third-party capital.

Furthermore, it’s possible, although not certain, that additional third-party capital in Universal’s reinsurance programme could have come from Everest Re’s Mt. Logan Re sidecar, and also RenaissanceRe’s ILS ventures, with both being able to deploy third-party capital alongside their own balance-sheets. Additionally other ILS fund managers may have participated in the renewal, on a collateralised or fronted basis, although not named.

Like last year, however, it’s impossible to say just how much of the 2016-2017 programme is supported by collateralised capacity from third-party investors, but the placements strong focus on Florida suggests that a reasonable volume could well have been.

“The growth in business and capital since last year, coupled with expanding our reinsurance coverage, maintaining the same Florida retention and significantly reducing our retention in other states, puts us in the strongest position we’ve ever been in as we enter the 2016 hurricane season,” said Downes.

This is the second year running that Universal’s reinsurance programme has benefitted from lower-cost, more efficient reinsurance capital.

And while rate decline deceleration has been evident in more recent times further reductions are expected and, with the increased entry of ILS capital from players like Nephila expected to continue also, it’s possible more insurers will have a similar experience to Universal during these renewals.

Also read:

Universal sees more reinsurance cost savings, Nephila a key player.

Universal cuts quota-share with Nephila’s help, explores cat bonds.

Nephila Capital vehicle buys Universal Insurance Holdings shares.

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