United eats through aggregate retention as catastrophe losses rise

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Property and casualty insurance company United Insurance Holdings (UPC Insurance) estimates that it has eaten all the way through its retention for its aggregate catastrophe reinsurance coverage, which means future losses will eat into a reinsurance program that features considerable ILS and collateralized market participation.

United recently revealed that 70% of the open market limit placed for its June 2017 reinsurance renewal was on a fully-collateralized basis, meaning that the insurer is placing a considerable reliance on the ILS fund manager market and other collateralized, third-party capital backed vehicles for its reinsurance coverage.

United said yesterday that it expects to suffer $20 million of pre-tax catastrophe losses from the second-quarter of 2017 (approximately $12.6 million after tax), as a series of hail, wind and other severe convective storm events primarily in Florida, Georgia, Louisiana, and Texas hit its portfolio.

UPC Insurance now estimates that it has eroded the $30 million retention that sits beneath its catastrophe aggregate reinsurance program, meaning that the next $30 million of catastrophe losses it suffers during the rest of 2017, other than named windstorms or earthquakes, will fall to its third-party reinsurers to pay.

The catastrophe aggregate reinsurance program runs up to a $60 million exhaustion point, so only a $30 million loss can be passed onto reinsurers by UPC.

United is just the latest in a line of insurers to be hit by the severe convective storm related loss activity in the United States, which has so far resulted in around $12 billion of insurance and reinsurance industry loss.

As these severe weather events aggregate upwards, the insurers are beginning to erode retentions on their aggregate reinsurance programs and we should expect to see more losses ceded to reinsurers and ILS markets as we move through the rest of the year.

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