Reinsurance program helps Heritage reduce winter storm losses

Winter storms in the first-quarter of 2018 impacted Florida headquartered property casualty insurer Heritage Insurance Holdings, Inc. but the firms reinsurance partners have shouldered most of the loss, as Heritage ceded roughly $47 million of winter storm losses to them.

The insurer picked up the losses in the north-east U.S., likely from events including named winter storm Riley which has hit numerous P&C insurers during the first-quarter.

For Heritage, it was the portfolio of the relatively recently acquired Narragansett Bay Insurance Company (NBIC) that took the losses, given prior to that acquisition Heritage itself did not have any exposure in the northeast or to this type of winter storm loss event.

Heritage Chairman and CEO Bruce Lucas explained that the winter storm losses and their ceding to reinsurers was a further example of how the firms conservative reinsurance program helps it to hedge its risks.

Lucas said during the firms recent earnings call that the gross loss from the impacts of the winter storm on NBIC’s northeast U.S. portfolio was $56 million.

However, after reinsurance the net pre-tax retained portion of that loss fell to just $9 million, as Heritage’s reinsurance program proved its worth again.

Reinsurance acts as a buffer against the volatility caused by severe weather and catastrophe events, for insurers like Heritage. With a significant program in place, which the firm has just renewed at relatively flat rates, Heritage relies on reinsurance and the ILS market as a piece of its capital stack and a way to minimise the volatility its shareholders would otherwise be exposed to.

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