FHCF’s $1bn 2018 reinsurance renewal came in 4% cheaper (net)


The $1 billion Florida Hurricane Catastrophe Fund (FHCF) reinsurance program renewal at June 1st came in at a cost that was roughly 4% cheaper on a net basis, despite the fact the attachment point had been lowered effectively making the program layer a riskier underwriting opportunity.

florida-map-flagIt’s a successful result for Florida’s State Board of Administration (SBA) and the FHCF administrators, as they paid slightly more on a gross basis but the net cost of this reinsurance to insurers included in the FHCF’s premium formula fell again.

The $1 billion reinsurance renewal for the FHCF was again completed with significant insurance-linked securities (ILS) fund and collateralized reinsurance vehicle participation.

The $1 billion reinsurance program saw that FHCF risk transferred to reinsurance and ILS capacity providers at an attachment point of $10.5 billion, down from the $11.5 billion attachment from the previous two years.

Despite this the total initial cost of the coverage premium at the 2018 renewal was $63 million, which is slightly higher than 2017’s $61 million but still below 2016’s $63.5 million.

However, the State Board of Administration (SBA) told Artemis that this premium cost of $63 million could actually drop once the final FHCF reimbursement premium is known later this year.

However, as the risk attachment point is lower and the expected loss effectively higher in this years program, the SBA said that the net cost included in the FHCF’s premium formula for the 2018 reinsurance renewal is $27.7 million, which is lower than the net cost of the 2017 and 2016 placements ($28.9 million in 2017 and $33 million in 2016).

So on this metric it could be considered that the net cost for the $1 billion of reinsurance came down by roughly 4% on the prior year, despite the fact the coverage attaches at a lower level of $10.5 billion for 2018.

That’s quite a result for the FHCF and the SBA, and is also reflective of the appetite for Florida property catastrophe risk in the reinsurance and ILS markets.

Also read: ILS plays key role in Florida cat fund (FHCF) $1bn reinsurance renewal.

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