United swaps to aggregate for attritional catastrophe reinsurance layer

Property casualty insurance holding company United Insurance Holdings Corp. (also known as UPC Insurance) has swapped its per-occurrence catastrophe reinsurance program for a new one-year new aggregate excess of loss reinsurance program, at the January renewals.

The new reinsurance program sees United retaining the first $15 million of aggregate catastrophe losses it suffers and then transferring the next $20 million of catastrophe losses, in the aggregate to its reinsurers, excluding named windstorms.

The $20 million of aggregate reinsurance limit is designed to provide United with additional protection against its modeled expected losses from winter storm, severe convective storm, tornado and hail. As a result this slice of United’s reinsurance cover is for all perils except named storm and hurricane risks.

Previously, United had a $22 million excess of $3 million per occurrence reinsurance coverage in place for 2015.

The new aggregate reinsurance covers United in all states where it writes business and is designed to provide both frequency and severity protection.

For frequency cover, catastrophe losses are stopped at $15 million unless the $20 million of aggregate limit is fully exhausted under the program. On the severity side the cover provides United with protection to approximately a 100 year return period for all of its natural catastrophe perils (except named windstorms).

The program includes a per occurrence limit of $15 million but this is supplemented by a $10 million excess of $15 million occurrence layer. This is designed to ensure that any catastrophe event costing over $15 million is covered and/or picked up by United’s existing core property catastrophe excess of loss program, which attaches at $25 million of losses and exhausts at $1.25 billion.

“We are pleased to have put this new catastrophe reinsurance program into effect. It provides us much greater protection from annual earnings degradation due to winter or convective storms than we have had in the past,” commented Brad Martz, Chief Financial Officer of UPC Insurance.

“The panel of reinsurers is very strong, and we appreciate the partnerships we have formed with our reinsurance counterparties. Over time, these relationships will help us manage the inherent volatility in our business and enable us to produce consistent profitability and strong returns on capital,” he continued.

This small aggregate layer provides United with a useful and likely cost-effective source of coverage for attritional property losses, particularly from perils such as hail, severe thunderstorm and winter storm, leaving its core catastrophe program to respond to the very large losses it could suffer and its hurricane or named storm exposure.

It’s unclear whether any collateralised reinsurance or ILS markets participated in this layer, but we understand that a number did in the main catastrophe program so it is possible.