ILS fund markets play key role in FedNat 2018 reinsurance renewal

U.S. primary insurer Federated National Holding Company (FNHC) is once again a good example of the important role that collateralized reinsurance markets including ILS fund managers are playing in the protection arrangements of the primary market.

Having recently completed its mid-year 2018 reinsurance renewal for insurer subsidiaries Federated National Insurance Company (FNIC) and Monarch National Insurance Company (MNIC), as our sister site Reinsurance News reported at the time, the company has now detailed the participants in its program for the year ahead and it’s clear that ILS fund markets have played a significant role again.

In summary, the reinsurance program will provide Federated National and Monarch National with $1.34 billion of protection against catastrophe losses, in excess of a $23 million retention.

The 2018 reinsurance program is structured into layers, utilising a cascading feature that drops down subsequent layers if the aggregate limit of the layer beneath is exhausted.

Combined, the reinsurance program affords Federated National roughly $1.81 billion of aggregate coverage with a maximum single event coverage of $1.34 billlion, across the private reinsurance and Florida Hurricane Catastrophe Fund (FHCF) treaties.

Looking at the list of counterparties disclosed by Federated National, there are numerous of the top ILS fund manager names evident, as well as other third-party capitalised reinsurers.

Although interestingly, the number that have participated on a fully collateralized basis has dropped, with the majority of ILS fund participation in FedNat’s reinsurance program now fronted in some way.

Last year there were five ILS markets that participated in FedNat’s renewal on a fully collateralized basis, Aeolus Capital Management Ltd., LGT ILS Partners Ltd., Nephila Capital, Horseshoe Re on behalf of an investor and Securis Investment Partners LLP.

For the 2018 reinsurance renewal only Securis has participated on a fully collateralized basis, while some of those named above are now participating through a rated fronting reinsurer.

As a result it can be a little harder to identify all of the ILS, collateralized markets or third-party capital backed vehicles involved in Federated National’s reinsurance program for 2018, but here are the ones that stand out.

• DaVinciRe – (the third-party capital backed, sidecar like reinsurance vehicle owned by RenaissanceRe)
• Pillar Capital Management (fronted by Hannover Re)
• Humboldt Re (on behalf of the Credit Suisse Insurance Linked Strategies team)
• Kelvin Re (which operates for a single Credit Suisse ILS investor)
• Credit Suisse ILS team (fronted by Tokio Millennium Re)
• Elementum Advisors (fronted by Tokio Millennium Re)
• Securis Investment Partners (fronted by Tokio Millennium Re)
• LGT ILS Partners (through its new rated reinsurer Lumen Re)
• Eskatos Capital Management (fronted by Hannover Re)

There are also other reinsurance underwriters who participated in the program and might have shared some of the risk with their third-party capital vehicles or investors, including firms such as XL, Everest Re, TransRe, Arch, Argo, AXIS, Chubb, Sompo International, Fidelis, Hamilton, Hiscox, Neon, RenRe, Ascot, Liberty, and more.

On top of this, Federated National does not disclose all of the Lloyd’s syndicates that participated, among which could capital from other ILS or third-party providers.

Notable is the fact Nephila is missing from the list of 2018 participants, although it could be covered within the syndicates line of course. But in 2017 Nephila was listed both through a fronted arrangement with Allianz as well as on a direct collateralized basis with Poseidon Re.

The involvement of the capital markets in furnishing Federated National’s reinsurance program for 2018 is significant again, as is the shift towards more fronted participation over fully collateralized, a trend that has been seen across a number of other Florida renewals this year, we understand.

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