HCI Group buys less reinsurance at 2018 renewal, pays more

Florida based property and casualty insurance operation HCI Group, Inc., the parent of Homeowners Choice Property & Casualty Insurance Company, Inc., has purchased less reinsurance at its 2018 renewal and paid more for the coverage, reflecting some of the rate rises reinsurers and ILS funds secured.

HCI Group said that its 2018-2019 catastrophe reinsurance program will protect it for up to $888 million of losses from a single hurricane or other event, excluding flood losses.

According to the firms catastrophe model, which is RMS Risklink V17, this is supposed to be sufficient to cover HCI’s probable maximum loss resulting from a 1-in-191-year storm based on the insurance group’s projected exposure at September 30th 2018.

This compares to the HCI Group catastrophe reinsurance program a year earlier, which saw the firm buying protection up to $968 million, although that only reflected a 1-in-173 year storm according to RMS V15, reflecting the changes in the model as well as in HCI’s own exposure base.

HCI’s catastrophe reinsurance program also includes a second-event tower, which for 2018-19 would kick in after an $888 million loss and would cover the firm up to $777 million, representing a 1-in-138 year loss event.

Last year’s program saw HCI with a second-event tower that covered the insurer up to $816 million, kicking in after the first $968 million loss, representing coverage for a 1-in-131 year storm in the older risk model version and based on prior year exposure data.

It’s possible that HCI Group has a smaller portfolio this year, following its losses from hurricane Irma, which would take down the tower size and the remoteness of the storm events covered, although model changes could also have had an effect here.

Paresh Patel, HCI’s CEO, said that the firm expects to pay net reinsurance costs of around $123 million for the 2018-2019 catastrophe program, which is up by $10 million on the $113 million paid a year earlier.

“We received strong interest from our reinsurers based on our data transparency and early loss projections post Hurricane Irma,” Patel commented. “In addition, we eliminated for this year our risk retention within HCI’s reinsurance subsidiary, Claddaugh Casualty Insurance Company, while keeping the cost of this year’s program roughly equal to last year’s. Considering our first event retention is only $16 million, we believe our company and our policyholders will remain well protected in the event of a catastrophe.”

The removal of the retention is also significant though, as last year HCI had a $34 million retention by Claddaugh within its first-event tower. By removing that the company actually faces a lower financial impact for storms up to the 1-in-191 year level for the 2018 hurricane season, which is a positive for shareholders.

We’re told a number of collateralized reinsurance or ILS fund markets have participated in the program, although it’s said these were largely fronted in some way.

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