United (UPC) adds heavy dose of collateralized, 15 new cat bond investors


According to John Forney, the CEO of United Insurance Holdings (UPC Insurance), the firms recently completed $3.1 billion reinsurance program featured a “heavy dose of collateralized limit” and at the same time more capital market investors were attracted to invest in its latest Armor Re II Ltd. catastrophe bond.

The reinsurance program was completed recently to provide United Insurance with a $3.1 billion tower of protection, with the private market participation in the program structured as a cascading or drop-down feature, and significant participation from capital markets or ILS players.

Speaking at the insurers recent earnings call, CEO John Forney said that placement of the insurers new $3.1 billion reinsurance program was led by a recently established internal team, Skyway Reinsurance Services, LLC.

United set up Skyway Reinsurance Services in the second-half of 2017, as a department to in-source its reinsurance intermediary function as part of the insurers overall risk management strategy.

By having its own team to lead the reinsurance placement it’s likely that United will have been able to reduce the intermediation costs of procuring its reinsurance program somewhat.

Forney explained, “Our new internal brokerage team at Skyway Reinsurance continued to impress, by leading the placement of a program with over $3.1 billion in limit, which equates to almost 1-in-400-year coverage.”

ILS funds and capital markets investors play a considerable role in providing this protection for United. In 2017 the insurer said that as much as 70% of the open market reinsurance limit secured was on a fully-collateralized basis.

We don’t have a comparable figure for this 2018 renewal, but Forney said that, “As usual our program included a heavy dose of collateralized limit and a variety of innovative features.”

“This year we were able to reduce our overall retention, obtain a much lower retention and increased our top-end protection, while achieving very fair pricing from our panel of 41 reinsurance partners,” he continued.

Major ILS players Nephila, Elementum and Aeolus have all taken a significant line in the program this year, we understand, while other ILS funds are involved as well as some additional reinsurer-sponsored third-party capital vehicles, we’re told.

Forney said that United’s largest reinsurance partners, which the three above all sit within, all “stepped up and wanted to do even more business with us.”

United has also recently completed its latest catastrophe bond placement, securing a $100 million slice of collateralized reinsurance coverage through the Armor Re II Ltd. (Series 2018-1) cat bond transaction.

The insurer appears to have attracted a raft of new investors to the latest Armor Re cat bond deal, which could be a reflection of a broader appeal of the transaction, a broader syndicated approach, as well as the increasing number of investors now allocating to ILS and especially direct investors in cat bond issues.

Forney commented, “We were thrilled this year to return to the cat bond market with our $100 million Armor Re II placement. That offering attracted 20 investors, 15 of whom were new to the UPC program and it also achieved good pricing.”

By expanding the number of capital market reinsurance partners United Insurance is ensuring it has greater availability to risk capital when it needs it and should be able to grow its catastrophe bond program over time as well.

The collateralized reinsurance market is a key source of risk capital for the company and enable it to diversify its program and ensure it benefits from the best pricing possible.

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