FHCF targets lower attachment for $1bn reinsurance renewal

by Artemis on May 24, 2017

The Florida Hurricane Catastrophe Fund (FHCF) may buy reinsurance at a lower attachment point of $10.5 billion, to protect itself against losses from the 2017 tropical storm and hurricane season, as its trustees expressed a preference for moving the risk transfer down the tower compared to prior years.

Map of FloridaAs we wrote earlier this week, the Florida Hurricane Catastrophe Fund (FHCF) is back in the market looking at its risk transfer options for reinsurance as a source of additional protection for the 2017 hurricane season, with a $1 billion renewal being explored by the Florida State Board of Administration.

The FHCF first purchased a $1 billion reinsurance layer in 2015 at an attachment point of $12.5 billion. It then renewed the reinsurance in 2016, at a lower attachment point of $11.5 billion of losses, which cost the FHCF a premium of $63.5m.

For its 2017 reinsurance renewal the trustees of the cat fund expressed an interest in bringing the attachment point down again, to $10.5 billion, a level that estimates suggest would cost the FHCF a premium of between $67 million and $70.3 million, according to presentation documents from yesterday’s State Board of Administration meeting.

At the meeting, FHCF executive director Ash Williams explained that he intends to go into the reinsurance market to begin negotiations for the 2017 reinsurance renewal, with the goal of securing favourable terms for the 2017 hurricane season.

The next steps are for Williams to secure firm offers of capacity, pricing and terms and report back if any agreement to secure the $1 billion reinsurance renewal is on the table, according to a FHCF representative.

Reinsurance premium costs are expected to be a little lower than in 2016, with indications suggesting that a renewal at the same attachment point as last year could save the FHCF somewhere around $800k. At the meeting yesterday, Williams noted that prices have continued to fall in the reinsurance market and that coverage terms would at worst be equal and perhaps better than the previous year.

As in last year’s renewal, it’s expected that the insurance-linked securities (ILS) and collateralized reinsurance market will play a significant role in the renewal, taking a portion of the risk from the FHCF.

It’s unclear whether catastrophe bond’s could still be on the table as an option. It seems likely that unless a lot of preparatory work has already been done for a first cat bond for the FHCF the timescale to get a deal to market could be too lengthy.

We’ll continue to update you as more information on the FHCF’s 2017 reinsurance renewal emerges.

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