Florida headquartered property and casualty insurer Heritage Insurance Holdings, Inc. said it has received quotes for its mid-year reinsurance renewals at flat rate levels, compared with a year ago, as markets show an appreciation for its low loss adjustment expenses and multi-year program that is already in place.
Speaking during the insurers recent earnings call Chairman and CEO of Heritage Bruce Lucas explained that the company sees itself as a unique proposition for its reinsurance panel and that as a result it expects to benefit from relatively flat renewal pricing in June.
Heritage is already out in the market with its 2017/18 mid-year reinsurance renewal program, but a number of factors mean that the company does not foresee steep rate increases in June.
“Overall in reinsurance, the jury is still out as to what happens,” Lucas explained. “There were a lot of calls for some really crazy rate increases that we were hearing on reinsurance pricing.
“But I’ll say this, I do think rates are moving higher, I can’t tell you by how much, but I can tell you that there are several things that are unique to Heritage that are driving lower rate increases than I would expect in the Florida market.”
Lucas cited the already in-force multi-year reinsurance protection, which includes the Citrus Re catastrophe bonds, that Heritage has in place as a factor in this.
Lucas said, “We have a massive amount of multiyear reinsurance at prior-year prices and so that is helping us to fill our capacity needs at much lower rates-on-line.”
He continued, saying that the hedging strategy that Heritage has had in-place for the last four years or so is “working extremely well now that we’ve had an event.”
As we reported recently, Heritage expects to make some claims from its Citrus Re catastrophe bond protection, which could total more than $104 million of reinsurance recoveries.
Having multi-year coverage in place when hurricane Irma struck means that Heritage has areas of its reinsurance program still intact, which can help in optimising (or reducing) the costs of the next renewal placement, as the whole program does not need to be renewed all at once.
But perhaps more important when it comes to negotiating reinsurance renewals, especially this year in Florida, Heritage boasts a lower loss adjustment expense cost ratio than many others, due to its proactive approach to claims handling, management and response.
When Heritage receives property insurance claims the firm sends out its own claims response team to visit affected properties as quickly as it can after a loss and also has its own construction company that provides restoration services and emergency or recovery assistance to claimants as well.
Through the use of these resources Heritage can keep its own loss adjustment expenses down, which in a year when LAE costs have skyrocketed in Florida after hurricane Irma must serve to keep the firms reinsurance panel happier. But these resources also help Heritage to mitigate the costs of assignment of benefits (AOB) issues as well, as its own people can often be the first to visit a claimant.
Lucas said that Heritage’s loss adjustment expenses are, “right at the bottom of the market and in fact they are extremely low. They are about half of what we’re seeing from our Florida competitors.”
Loss adjustment expenses and inflation are typically passed on to reinsurance firms by primary insurers, so by controlling LAE better Heritage can make itself a more attractive counterparty to work with, helping it to secure better rates and terms.
“We saved our reinsurance partners 10’s and 10’s of millions of dollars in loss adjustment expenses,” Lucas explained. “We’ve already heard from a lot of our major reinsurers that this is absolutely going to be taken into account when they price and underwrite our program. Indeed, we’ve already had line quotes, I mean, big ones, 100’s of millions, at flat pricing.”
Lucas summed up, saying Heritage is, “Optimistic that we’re going to be able to control our reinsurance pricing better than our Florida peers, because we have reinsurance synergies, the lowest LAE that I’m aware of in the Florida market and we have multi-year reinsurance treaties in place. This really improves the outlook as we move forward.”
Not only are these added value services that Heritage offers providing a benefit to its insurance customers, but they are also delivering lower claims inflation through to its reinsurers, than some competitors have seen.
Reinsurers like to see that partners and clients are controlling loss inflation, where possible, so in the context of the Florida market Heritage’s approach is likely to be looked on favourably by its reinsurance capacity providers.
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