Losses eroding United’s aggregate reinsurance retention

by Artemis on May 16, 2017

An active April for catastrophe events and subsequent losses has seen United Insurance Holdings (UPC Insurance) eat into the retention beneath is aggregate catastrophe reinsurance, with another, roughly $10 million of losses likely to result in the firm utilising calling on its reinsurers.

During United’s first-quarter 2017 earnings call John Forney, President & Chief Executive Officer (CEO) of UPC Insurance, revealed that an active April for catastrophes resulted in losses of around $9 million, which on a combined basis, takes the firm’s losses so far this year, to around $19 million.

Meaning that another $10 million or so of losses would see the firm eat through its $30 million aggregate catastrophe covers retention, when reinsurance providers would then take over paying losses.

UPC Insurance announced the renewal of its aggregate catastrophe reinsurance cover towards the end of last year, explaining that it’s for other-catastrophe losses of above $1 million per-event, but below $15 million, so covers frequency losses from perils such as severe weather events.

In the aggregate, UPC will retain 100% of those losses up to $30 million, and once losses aggregate above the $30 million the reinsurance will take over paying the losses, but not exceed an annual aggregate limit of $30 million.

Primarily, catastrophe losses experienced by UPC Insurance so far in 2017 were from five PCS events (all likely severe convective weather related given the proliferation of losses from that peril in 2017), which mainly impacted Texas, Florida, Louisiana, and other Southern States, said Brad Martz, Chief Financial Officer (CFO) at UPC Insurance.

Losses so far for the company have almost hit $20 million, meaning the firm is roughly two-thirds the way through its aggregate retention, and just over $10 million of losses away from eating into its 2017 reinsurance coverage.

While announcing the renewal of its aggregate catastrophe program UPC Insurance also revealed a new 20% quota-share reinsurance arrangement backed by Nephila Capital and Greenlight Re.

Under the quota-share arrangement the reinsurance capacity providers take 20% of risks for all covered business, and sees UPC Insurance retain the first $30 million from each non-cat loss. Since the programme was put in place the firm has not seen a large enough attritional loss event, but the quota-share provides the firm with meaningful risk transfer for catastrophe and attritional losses.

During the earnings call Forney explained that the firm has changed its reinsurance programme pretty significantly in recent times, expanding its aggregate programme and obtaining expanded coverage for outside of the State of the Florida.

The firm’s robust and sophisticated use of both traditional and third-party reinsurance capital enables it to develop an efficient, effective and substantial reinsurance programme, designed to mitigate the impact of large losses, and an aggregation of smaller events.

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