Multi-year & collateralized percentage up in Assurant’s reinsurance

Multi-year traditional and fully-collateralized protection has grown as a percentage of the reinsurance program of U.S. specialty insurance group Assurant, as the insurer seeks to reduce its financial exposure to catastrophic losses caused by severe weather events.

For 2015 Assurant shrank its catastrophe reinsurance program, taking on $1.32 billion of protection compared to around $1.77 billion a year earlier. This shrinking of property catastrophe reinsurance cover is due to an ongoing rationalising of reinsurance buying and also the divestiture of a subsidiary, American Reliable Insurance Company.

Also for 2015 Assurant has managed to significantly reduce its retention, with the program now providing its $1.32 billion of protection excess $155m, compared to a retention of $190m in 2014. As a result, the insurers spend on its reinsurance program dropped, from $240m in 2014 to just $180m for the 2015 renewal.

While this is partly due to the lower protection, there will also be an element of price reduction included in the savings this year.

“While catastrophic events are unpredictable, Assurant’s comprehensive reinsurance program is put in place annually so we can weather the storm. This year’s program addresses a reduction in our overall U.S. property exposure and, at the same time, international growth,” commented Gene Mergelmeyer, president and CEO of Assurant Specialty Property, a business segment of Assurant. “The program protects our financial ability to respond to our policyholders when they need us the most – after a catastrophic weather event.”

Interestingly, as the program shrank so has the number of counterparties Assurant has used, with 40 reinsurers rated A- or better by A.M. Best participating in 2015, compared to more than 50 a year earlier.

In order to further diversify its sources of reinsurance capacity, Assurant continues to supplement the traditional reinsurance cover with multi-year fully collateralized reinsurance coverage, including its Ibis Re II catastrophe bonds.

For this year’s reinsurance renewal Assurant had one fewer catastrophe bond in-force. The insurers Ibis Re II Ltd. (Series 2012-1) cat bond had matured at the start of 2015, leaving just its $185m Ibis Re II Ltd. (Series 2013-1) remaining.

In fact, as a result of the increased amount of multi-year and collateralized reinsurance cover in the program, as a proportion of each layer of the tower this type of capacity has grown, although overall remaining at $342m , the same limit that had been purchased in 2014. In 2015 the multi-year and collateralized cover makes up almost 26% of the overall reinsurance program limit, compared to around 19% a year earlier.

This perhaps evidences the increasing importance of collateralized reinsurance, to a degree, as well as the fact that it is maybe easier for cedents to come to terms with and factor into their programs than cat bonds.

It will be interesting to see whether Assurant elects to renew or to replace the Ibis Re II 2013-1 cat bond, which has just under a year left to run to maturity, in order to maintain greater diversity of risk transfer capital and structure.

As the mutli-year and collateralized reinsurance segment of the program has grown, the catastrophe bond backed cover from Ibis Re II has declined. Last year cat bonds contributed almost 18% of the program, for 2015 that has shrunk back to 14% as the cat bond limit dropped back to $185m.

The 2015 Assurant reinsurance program tower can be seen below, with the 2014 version underneath for comparison:

Assurant 2015 catastrophe reinsurance program

Assurant 2014 catastrophe reinsurance program