Homeowners Choice Property & Casualty Insurance Company, Inc., an HCI Group wholly owned subsidiary, has completed its catastrophe reinsurance program for the 2016-2017 year, securing a saving of roughly $48 million, utilising both collateralised and traditional reinsurance protection.
Florida domiciled homeowners insurer, Homeowners Choice, has secured catastrophe reinsurance coverage for an event up to $972 million for the 2016-2017 year, sufficient protection for a 1-in-165-year event, according to reports filed with the Securities and Exchange Commission, by HCI Group.
The program consists of agreements with a range of private reinsurers that are either AM Best rated ‘A-‘ or better, or which are fully collateralised, and also the Florida Hurricane Catastrophe Fund (FHCF).
Homeowners Choice purchased reinsurance protection from Claddaugh Casualty Insurance Company, a captive reinsurance company subsidiary of HCI Group, Inc., that provides the firm with $40 million of cover in a first event, and $36 million in a second event, for premiums of $31.2 million.
Reinsurer Claddaugh then entered into a retrocession contract with Oxbridge Re, itself a fully-collateralised, investment oriented company, highlighting the firm’s use of third-party capital within its program, alongside traditional cover.
For a premium payment of $3.4 million the Oxbridge Re part of the program provides first event cover of approximately $6 million, says HCI Group.
In addition to this, Claddaugh, has entered into a retrocession contract with a third-party reinsurance company, that covers the firm up to $12 million for a second event, for premiums of $1.4 million.
“Therefore, Claddaugh’s net exposure will be approximately $34 million in a first event and $24 million in a second event,” explains HCI Group.
According to Paresh Patel, Chief Executive Officer (CEO) of HCI Group and Chairman of the Board of Cayman Islands domiciled Oxbridge Re; the firm expects reinsurance costs of approximately $113 million for the year, compared with $161 million a year earlier.
“While it is difficult to compare reinsurance coverages year to year, we expect to reduce our reinsurance spend by approximately $48 million this contract year when compared with the prior contract year.
“In addition, we replaced a large portion of our participation in the Florida Hurricane Catastrophe Fund with broader private coverage and reduced by approximately $14 million our overall retention of catastrophic risk, including risk retained through HCI’s reinsurance subsidiary, Claddaugh Casualty Insurance Company. We believe our company and our policyholders will remain well protected at a much lower cost,” said Patel.
Total premiums for the single event $972 million (excluding flood) cover secured by Homeowners Choice is approximately $127 million, of which a portion will be paid in instalments through the contract year. This is also includes retrocessional premiums paid by reinsurer Claddaugh, explains HCI Group.
In the case of a first event the firm will retain roughly $16 million and $20 million in a second event.
The mandatory FHCF component of its 2016-2017 catastrophe reinsurance program covers approximately 45% of $942 million first event loss, excess of $300 million, at an estimated cost of $30 million, says the firm.
“Following an event that would exhaust coverage provided by the Florida Hurricane Catastrophe Fund, we would have coverage for a subsequent event as large as $670 million,” explained HCI Group.
The use of traditional and collateralised reinsurance enables Homeowners Choice to secure a diverse, comprehensive catastrophe program at a reduced cost from the previous year, something that may have also been helped by the competitive reinsurance landscape.
Collateralised reinsurance and insurance-linked securities (ILS) markets are becoming a more and more common component of companies overall catastrophe programs, offering efficient, diversified capital that supplements firms’ reinsurance arrangements.