United (UPC) hiked Irma loss by 56% in Q2, raising toll for ILS backers

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Property and casualty insurance company United Insurance Holdings (UPC Insurance) has significantly increased its estimate for losses caused by hurricane Irma during the first-half of the year, raising the total by 56% to $623 million and meaning more losses passed onto its reinsurance capital providers.

United’s UPC Insurance is a significant user of collateralized sources of reinsurance cover, including from ILS funds and other collateralized reinsurance investment vehicles.

At one point the United catastrophe reinsurance program was more than 70% collateralized, perhaps as much as 85% including the catastrophe bonds, and the program which was renewed at $3.1 billion this year continues to feature the majority of the major ILS markets.

As a result, the increased losses from hurricane Irma, which have been raised as the industry loss estimates increased this year, will have seen a significant proportion flowing through to the capital markets.

During the insurers second-quarter earnings call yesterday, CFO Brad Martz explained that hurricane Irma loss creep had hit the firm.

“In February we definitely started to see some loss creep from Irma,” Martz explained. “I thought we were really, probably, one of the first carriers to address that head on. Once we got to around April, we knew it was fairly clear there was a trend that required us to increase our reserves.”

At this stage of the year, more than 10 months after hurricane Irma occurred, United has now paid around $400 million of claims, according to Martz, which its reinsurance recoverable from both traditional and ILS sources.

United’s original loss estimate for hurricane Irma way back in September 2017 was for an impact of $400 million to the company.

Now though this has been increased significantly, as CEO John Forney explained, “Today, our gross reserve for Irma sits at $623 million. That included a small change at year-end, and then, obviously, a bigger change in the first-half of this year.”

United was proactive and increased its estimate in the first-quarter of 2018, as a response to the rising industry loss estimates being published by PCS.

Martz commented, “That was something we did several months ago, by the way, it wasn’t something we did in May, June or July. It’s not news to any of our reinsurers that we deal with. It’s something that we did early.”

Martz also said that on a market-share basis United and the UPC book appear to have performed well, in terms of hurricane Irma losses.

“I think we still, based on the most recent PCS and modeled estimates, our share of the losses on Irma are significantly less than our market share of the business and so our book performed very well on Irma,” Martz said.

The collateralized reinsurance market and ILS funds are a key source of risk capital for United’s business, enabling it to diversify its program secure the best pricing possible. Now these alternative markets will also show their worth in paying a significant chunk of the insurers Irma claims creep as well.

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