Heritage shrinks reinsurance by $153m, CEO cites “challenging renewal”

Heritage Insurance Holdings, Inc., the Florida headquartered, nationally expansive U.S. property casualty insurer, has placed its first event reinsurance tower to an exhaustion point of $1.347 billion, which is around 12% lower than the prior year, while spend has increased by more than 9%.

Heritage CEO Bruce Lucas cited a “challenging renewal” as his carrier negotiated the hardening Florida reinsurance marketplace at the June 2020 renewals.

The 2020-2021 catastrophe reinsurance program covers Heritage’s insurance carrier subsidiaries, Heritage Property Casualty Insurance Company (HPCIC), Narragansett Bay Insurance Company (NBIC) and Zephyr Insurance Company (ZIC).

The renewed tower means Heritage is covered for a first catastrophe event up to $1.347 billion in the southeast, inclusive of loss retentions and co-participations.

That’s down by $153 million from the $1.5 billion of first event catastrophe reinsurance cover that Heritage secured a year ago.

However, it’s important to highlight that Heritage has been de-risking its portfolio in Florida’s Tri-County in recent years. So less first-event limit and a shorter tower may not actually equal carrying more exposure through the season.

With private market layers featuring reinstatements, some of which are prepaid, Heritage will actually benefit from some $2.382 billion of total reinsurance limit in the southeast, taking into account loss retentions and co-participations.

Heritage kept its Florida Hurricane Catastrophe Fund (FHCF) participation at 90% at this year’s renewal, the same level as the prior year.

Retentions for a first event loss in the southeast and Hawaii will stand at $20 million, with additional co-participation above $945.4 million in the southeast specifically.

For the northeast, first event retention stands at $13.3 million, with additional co-participation above $390 million.

Heritage paid $272.1 million for its 2020-2021 catastrophe reinsurance renewal, which is up by some 9% on the prior year’s spend of $249.2 million.

This year that accounts for 28.4% of March 31st 2020 premiums-in-force, up 6.0% from the 26.8% last year and also slightly higher than the 28.1% of premiums in-force paid in 2018.

Bruce Lucas, Heritage’s Chairman and CEO, commented on the renewals, “We were able to place our 2020-2021 catastrophe reinsurance program on reasonable terms in a challenging renewal year, which is a testament to our multi-state diversification, Florida de-risking, prudent reserving and long-standing relationships with our reinsurance partners. I would like to thank all of our reinsurance partners for their continued support.”

Reduced first event protection does mean Heritage is perhaps a bit more exposed to major hurricanes in the southeast, but across its expanding national book of business and taking into account reinstatements the company still has significant reinsurance protection in-force for the coming year.

Also, the de-risking in Florida’s Tri-County means the company is carrying less exposure into the wind season in the peak zone, which may be the reason for the shortening of the overall first-event tower.