Reinsurance & new quota share limits AmTrust’s exposure to Q3 cats

AmTrust Financial Services, Inc. said it has successfully limited its exposure to third-quarter natural catastrophe events through the use of reinsurance and its new quota share arrangement that it entered into as of August 1st 2017.

The company said that it expects the majority of its losses from Hurricane Harvey, Hurricane Irma, Hurricane Maria and the recent earthquake in Mexico City would fall under contracts written at Lloyd’s of London through its AmTrust at Lloyd’s unit.

However, despite AmTrust’s tendency to shun property catastrophe exposure where it can its Republic Companies subsidiary in the U.S. has also shared in the Q3 catastrophe losses.

AmTrust said that it expects a net loss of between $40 million and $65 million due to the Q3 catastrophe loss activity.

Robust reinsurance arrangements have helped and AmTrust’s reinsurance panel are set to shoulder most of the burden it would seem, with losses set to fall across its program and the new quota share arrangement it seems.

AmTrust has excess of loss reinsurance that provides catastrophe coverage for losses of over $20 million, with a per event limit of $830 million. It also has multi-event catastrophe coverage for losses in excess of $10 million per event that hit its AmTrust at Lloyd’s business, where most of the recent losses are set to fall.

In addition, AmTrust entered into the new quota share arrangement with a panel of reinsurers as of August 1st 2017, which is designed to work in conjunction with the insurers existing excess of loss reinsurance programs on catastrophe and non-catastrophe events.

The quota share has a cession rate of 62.5% and covers the personal property portfolio at subsidiary Republic. Following recent events this new quota share arrangement will have helped to remove significant volatility from AmTrust’s results, by minimising the impact of these major losses.

“Although property represents a small portion of our overall portfolio, AmTrust had exposure to the recent events in the United States, Caribbean and Mexico either through Republic or our operations at Lloyd’s of London,” commented Barry Zyskind, Chairman and Chief Executive Officer, AmTrust. “Our net exposure to these events is limited given our reinsurance and quota share programs and the Company’s limited appetite for catastrophe risk.”

AmTrust is another example of an insurer that is set to pass on the majority of its catastrophe losses this quarter to reinsurance providers. It’s not clear whether there is much in the way of ILS market participation in AmTrust’s program currently. The insurer prefers rated reinsurance coverage, but of course there could be some third-party capital participating on a fronted basis.