Heritage finalises 2023 reinsurance renewal, diversification away from Florida evident

Heritage Insurance Holdings, Inc. has now finalised its catastrophe excess-of-loss reinsurance renewal for the coming year and hurricane season, with continued diversification away from Florida evident, as for the first time the insurers southeast reinsurance tower is now shorter than its northeast one.

Heritage has been expanding nationally in the United States for some years now, but its Florida home had continued to be the largest concentration of risk for the company, and so the target for much of its catastrophe reinsurance protection.

But now, with Heritage expanding faster into the northeast, while continuing to trim and manage exposure in the southeast, the reinsurance towers have swapped and the Northeast tower now extends to an exhaustion point of $1.3 billion, while Heritage’s Southeast reinsurance tower tops out at $1.1 billion.

The all indemnity based, catastrophe excess-of-loss reinsurance program, covers subsidiaries Heritage Property Casualty Insurance Company, Narragansett Bay Insurance Company and Zephyr Insurance Company for the year to end of May 2024.

With the reinsurance market harder, of course the costs have gone up and Heritage said it has paid roughly $420.5 million for its 2023-24 reinsurance program, which accounts for 32% of March 31, 2023 premiums-in-force, one point higher than the prior year cost which accounted for 31% of March 31, 2022, premium-in-force.

Heritage’s first event reinsurance tower exhaustion points for the coming year are set as $1.3 billion for the Northeast, $1.1 billion in the Southeast and $870 million in Hawaii.

Within that sits the recently issued new Citrus Re catastrophe bond, which as we reported Heritage successfully priced below the initial guidance mid-points, to provide an upsized $235 million of reinsurance protection, from the Citrus Re Ltd. (Series 2023-1)  named storm deal.

Which is in addition to $100 million from the Northeast focused Citrus Re Ltd. (Series 2022-1) catastrophe bond it sponsored a year ago.

This year, Heritage will have a first event retention for the Southeast and Hawaii of roughly $40 million, and $30 million in the Northeast US, the same as the previous year. Some individual insurance companies retentions will be lower as Heritage will use its captive reinsurance company, Osprey Re, in addition to the open market reinsurance.

For 2023-24, Heritage has opted for a 90% FHCF participation again, but has also tapped the Reinsurance to Assist Policyholders (RAP) program that is expected to provide it roughly $71 million of limit at no cost.

A year ago, Heritage did not use the RAP program, so on the same basis, had it paid for this $71 million of limit its costs for this year’s program could have been even higher, it’s safe to assume.

“We are pleased to announce the completion and terms of our 2023-2024 CAT XOL reinsurance program,” Heritage CEO Ernie Garateix explained. “We appreciate our reinsurance partners’ continued support and their recognition of our efforts to provide the appropriate coverage for the market.

“We expect rates to continue to increase and will take underwriting actions within statutory guidelines to ensure long-term profitability in the markets we serve. We will continue to seek profitable opportunities while maintaining a balanced portfolio.”

Heritage has benefited from being able to reduce its policy count, while raising its premiums in force as the market has hardened, resulting in $1.3 billion in force at March 31st 2023, almost 11% up on the prior year, while the policy count has shrunk by around 50,000.