For Assurant catastrophe bonds broaden coverage and access additional capital sources

U.S. specialty insurance company Assurant Inc. has published details of the completion of their property catastrophe reinsurance program for the 2012 renewal year. Assurant placed its traditional catastrophe reinsurance program in two phases, at the January and June renewals, with more than 50 reinsurers. Their catastrophe reinsurance program is supplemented with the Ibis Re catastrophe bonds which give Assurant an additional $280m of multi-year, fully collateralized hurricane reinsurance coverage.

“Assurant successfully placed the 2012 Property Catastrophe Reinsurance Program, which helps reduce the financial risk to Assurant and provides comprehensive protection for homeowners, clients and shareholders in the aftermath of a catastrophe,” said Gene Mergelmeyer, president and CEO of Assurant Specialty Property. “Assurant applies a disciplined risk management approach in structuring our reinsurance program. We successfully expanded our coverage in the 2012 program by more than fifteen percent to address significant growth in our catastrophe prone exposure.”

Assurant uses multiple factors when purchasing its reinsurance cover to decide how best to spend their capital and where best to get the cover from. Factors assessed include the cost efficiency of reinsurance coverage purchased and the credit quality, financial strength and claims paying ability of the reinsurers involved.

Assurant sponsored their third catastrophe bond transaction in January 2012, replacing cover from their first cat bond Ibis Re Ltd. (Series 2009-1) which matured at the end of May. The $130m Ibis Re II Ltd. (Series 2012-1) added to the cat bond cover provided by the $150m Ibis Re Ltd. (Series 2010-1), which was issued in April 2010. Assurant says that they choose to issue cat bonds as a way of supplementing their traditional reinsurance program with multi-year sources of cover that enable them to broaden coverage and access new sources of capital.

Assurant’s 2012 property catastrophe reinsurance program includes:

• Per-occurrence catastrophe coverage, providing protection of up to $1.5 billion in excess of a $240 million retention. The coverage is structured in five layers with Assurant having a 5 percent co-participation in the fifth layer.
• Florida Hurricane Catastrophe Fund coverage, providing state-specific coverage for 90 percent of losses up to $465 million in excess of a $181 million retention.
• Catastrophe bonds, providing $280 million of multi-year, fully collateralized hurricane coverage, issued in April 2010 by Ibis Re Ltd. and in January 2012 by Ibis Re Ltd. II, both special purpose reinsurance companies.
• Multiple storm protection coverage is multi-year, lowers the program retention to $120 million subsequent to the first event and provides for a maximum recovery of $100 million for the second and subsequent events. This coverage does not provide for an automatic reinstatement.

Assurant have provided a graphic showing the way this cover stacks up to provide their overall reinsurance program. As you can see the catastrophe bond cover is spread over multiple layers of the program, providing cover for the largest U.S. hurricane risks that Assurant faces on an industry-loss basis.

Assurant – 2012 Property Catastrophe Reinsurance Program