Florida cat fund (FHCF) renews $1bn reinsurance at reduced cost

The Florida Hurricane Catastrophe Fund (FHCF) reinsurance renewal has now been completed, with the State Board of Administration (SBA) securing another $1 billion layer of cover, again featuring fully collateralized participation from some ILS fund managers, and with a -4% price reduction year-on-year.

The FHCF first visited the reinsurance market in 2015, when it secured a $1 billion reinsurance layer 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 FHCF has managed to secure its layer at the same attachment point of $11.5 billion of losses at a reduced cost of $61 million, so representing a -4% reduction in pricing.

Earlier this year the FHCF had been exploring a renewal at a lower attachment point of $10.5 billion, but it was perhaps deemed too expensive and we understand appetite to provide the coverage at that lower level was not as high.

The reinsurance purchase puts the FHCF in the best financial state it has ever been in advance of a hurricane season, with its statutory maximum limit of $17 billion fully liquid and available to pay claims, consisting of $14.9 billion of cash, $1 billion of reinsurance, and $2.7 billion of pre-event bonding.

Given the softened state of the reinsurance market, the SBA said it was able to “Take advantage of an opportunity to optimize its capital structure for the current contract year and also to accumulate or preserve capital for subsequent contract years.”

Additionally, transferring risks to the reinsurance and capital markets also helps the FHCF, as it; “Transfers risk outside of Florida, reduces its market access risk and dependency on debt capital markets, and reduces or avoids potential emergency assessments on most Florida policyholders.”

The net cost of this reinsurance to insurers included in the FHCF’s premium formula is $28.9 million, the SBA said.

Two fully-collateralized reinsurance markets participated in the renewal, which from the list published we assume to be the AlphaCat Managers ILS team with a $40 million line taken by its reinsurer AlphaCat Re Ltd., while the LGT Insurance-Linked Strategies team took one of the largest lines in the program, at $75 million, through its Collateralised Re Ltd. vehicle.

Other participants of note are Nephila Capital’s syndicate at Lloyd’s of London 2357, which took a $20 million line and an $82.5 million line for DaVinci Re, the third-party capitalised sidecar-like vehicle operated by RenaissanceRe.

A full list of program participants and their line sizes are below:

United States:
‒ American Standard Ins Co of WI – $15,000,000
‒ Everest Reinsurance Co – $5,000,000
‒ Swiss Re America Corp – $175,000,000

Bermuda:
‒ AlphaCat Re Ltd – $40,000,000
‒ Arch Re Ltd – $60,000,000
‒ Argo Re Ltd – $10,000,000
‒ Aspen Bermuda Ltd – $5,000,000
‒ Chubb Tempest Re – $15,000,000
‒ Collateralised Re Ltd – $75,000,000
‒ DaVinci Re Ltd – $82,500,000
‒ Hiscox Ins Co (Bermuda) Ltd – $15,000,000
‒ Markel Bermuda Ltd – $10,000,000
‒ Renaissance Re Ltd – $262,500,000
‒ Tokio Millennium Re AG, Bermuda – $20,000,000
‒ Validus Re Ltd – $50,000,000
‒ XL Bermuda Ltd – $10,000,000

United Kingdom:
‒ Lloyd’s Syndicate 0033 (HIS) – $5,000,000
‒ Lloyd’s Syndicate 0609 (AUW) – $1,500,000
‒ Lloyd’s Syndicate 0727 (SAM) – $1,000,000
‒ Lloyd’s Syndicate 1274 (AUL) – $1,500,000
‒ Lloyd’s Syndicate 1458 (RNR) – $30,000,000
‒ Lloyd’s Syndicate 1910 (ARE) – $10,000,000
‒ Lloyd’s Syndicate 2001 (AML) – $8,000,000
‒ Nautical Mgmt Ltd/ Lloyd’s Synd 2357 – $20,000,000
‒ Lloyd’s Syndicate 2791 (MAP) – $7,500,000
‒ BGS Services (Bermuda) Ltd / Lloyd’s Synd 2987 – $5,000,000
‒ Lloyd’s Syndicate 4444 (CNP) – $35,000,000
‒ Liberty Specialty Services Ltd/ Lloyd’s Synd 4472 – $6,000,000

Asia:
‒ Korean Re Co – $12,000,000
‒ Taiping Re Co Ltd (HK) – $7,500,000

Total: $1,000,000,000

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