United passes majority of hurricane loss to ILS & reinsurance

by Artemis on November 7, 2017

Property and casualty insurance company United Insurance Holdings (UPC Insurance) has passed the majority of its losses from hurricanes Harvey and Irma to its reinsurance capacity providers, with the ILS fund market providing a significant amount of support, as its program is roughly 85% collateralized.

At its 2017 reinsurance renewal earlier this year in June, UPC Insurance said that it had opted for 70% of the open market reinsurance limit placed to be on a fully-collateralized basis.

Add to this UPC’s January renewal aggregate excess of loss catastrophe reinsurance and the quota share arrangement it entered into with the backing of collateralized player Nephila Capital, and it’s clear that the insurer has sought the majority of its protection from capital market sources this year.

In total, UPC says that more than 85% of its reinsurance limit is collateralized in cash, meaning that it knows the protection will be there when it needs it and the worst loss events happen.

So with the impacts of hurricanes Harvey and Irma causing United an estimated gross loss of up to $600 million, as it revealed in September, it was clear that the ILS market would be paying a significant chunk of the insurers claims.

UPC Insurance said that the reinsurance has helped it to minimise its retained losses from the hurricanes to just $91 million, while the quota share has helped it to minimise that even further down to just $83 million.

This suggests that UPC’s reinsurance providers took around $500 million of losses on behalf of the company, which if the losses were split 85% to collateralized or ILS sources means that as much as $425 million could have fallen to capital market backed players to pay.

As of September 30th 2017, UPC Insurance reported reinsurance recoverable on paid and unpaid losses of almost $490 million, compared to just $24 million as of the start of this year. Some of this clearly reflects the loss impact from hurricanes Harvey and Irma, although it’s not possible to know how much.

UPC has benefitted greatly from the ILS markets willingness to provide it with efficient reinsurance capacity, helping the insurer to reduce the volatility associated with recent hefty losses.

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