United adds quota share & renews aggregate catastrophe reinsurance

by Artemis on December 13, 2016

United Insurance Holdings has added new protection in the form of a quota share reinsurance program effective December 1st 2016 and renewed its aggregate excess of loss catastrophe reinsurance coverage effective January 1st 2017.

John Forney, President and CEO of United carrier UPC Insurance explained; “We are pleased to put both of these treaties in place. In combination with our core catastrophe excess-of loss-program that we place every June, these reinsurance programs provide us comprehensive protection against losses from hurricanes, earthquakes, and other natural perils.

“In addition, the quota share reinsurance agreement marks the first time in our company’s history that we have done external quota share reinsurance and provides meaningful risk transfer for both catastrophe and attritional losses. We appreciate the confidence and support shown by our reinsurance partners on both programs.”

These are in addition to the mid-year reinsurance renewal that United places and that involves a significant component of fully collateralised coverage from ILS fund markets. This end of year placement and the new quota share will also feature collateralised markets it is assumed.

It’s interesting that this is the first external quota share, as UPC has previously utilised its Promissum Re vehicle as a way to effect an internal quota share reinsurance arrangement, with a third-party capital provider assisting with capacity.

Both of the reinsurance arrangements provide cover for in-force, new and renewal business written. However the quota share reinsurance program provides coverage solely for United Property and Casualty Insurance Company, while the aggregate excess of loss program provides coverage for a number of United companies, United Property and Casualty Insurance Company, Interboro Insurance Company, and Family Security Insurance Company.

The new reinsurance programs have been designed to work in conjunction with UPC Insurance’s catastrophe excess of loss reinsurance program, as the insurance group aims to benefit from “broad risk transfer protection” and to reduce its financial volatility.

Through the quota share 20% of risks will be ceded to the capacity providers (15% on single year and 5% over a two-year period) for all subject business under the terms of the agreement. All catastrophe perils are covered by the quota share, so hurricanes, tropical storms, tropical depressions and earthquakes, as well as other-catastrophe perils such as weather-related perils other than hurricanes, tropical storms, tropical depressions and earthquakes, and also attritional losses.

For the other-catastrophe perils, United’s new quota share coverage will sit alongside the aggregate excess of loss program it has renewed, after retention has been eroded. For the main catastrophe perils, the quota share agreement offers the insurer ground-up reinsurance protection which will lover the retention paid for catastrophe losses. There is an attritional loss ratio cap which means participating quota share reinsurers participation in paying attritional losses is limited.

Meanwhile, the renewed aggregate excess of loss reinsurance agreement only covers the other-catastrophe perils, so items such as hail and severe thunderstorm will be covered under this layer of protection.

The aggregate coverage is for other-catastrophe losses of over $1 million per event, but less than $15 million, UPC will retain, in the aggregate, 100% of those losses up to $30 million.

United said that it will retain 100% of losses in the aggregate up to $30 million from non-catastrophe loss events causing over $1 million, but less than $15 million of impact to the firm.

Once losses aggregate above the $30 million in the aggregate the reinsurance will take over paying losses but not to exceed an annual aggregate limit of $30 million.

The annual aggregate reinsurance program was placed at 85% rather than 100%, United said, due to the fact that quota share agreement reinsurers’ will assist in paying other-catastrophe losses after the $30 million retention.

With ILS funds and collateralised reinsurance providers typically taking a growing share of reinsurance programs such as this, it is safe to assume their participation. Collateralised reinsurance plays a growing role at United, as evidenced also by the issuance of its first catastrophe bond this year, Laetere Re Ltd. (Series 2016-1).

United is one of the insurers that has been growing its reach in recent years and the use of reinsurance capital, as well as the ability of reinsurers and ILS funds to provide increasingly flexible solutions, has been key to its ability to do so without over-exposing itself to catastrophe perils.

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