United (UPC) grows reinsurance to $3.1bn, in cascading program

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United Insurance Holdings (UPC Insurance) has renewed its reinsurance for 2018/19 in an enlarged placement that provides $3.1 billion of coverage, with the private market participation all structured as a cascading or drop-down feature, while the capital markets continued to play a key role.

The $3.1 billion of reinsurance cover means United is covered for an event as severe as a 1-in-400 year storm, the company said, and provides sufficient protection for the insurer to be able to cope with a 1-in-100 and 1-in-50 year hurricane in the same year.

United said the program provides it with better frequency and severity protection than the prior year’s program. It’s also larger, as a year ago United finalised a reinsurance program that exhausted at $2.8 billion, so this year the program provides for $300 million more coverage.

The private market component of the 2017 renewal was $1.9 billion of aggregate open market catastrophe reinsurance.

This year that has increased to $2.185 billion of aggregate open market catastrophe reinsurance coverage, covering named storms and earthquakes across the regions United and UPC is exposed.

The renewed program has been placed with 41 reinsurers and 93% of the open market limit has either been placed on a fully collateralized basis or with reinsurers rated A+ or better.

The insurer benefits from $262.5 million of multi-year protection, which includes its recently issued $100 million Armor Re II Ltd. (Series 2018-1) catastrophe bond transaction.

The new reinsurance placement means UPC and subsidiary insurers including American Coastal Insurance Company, United Property and Casualty Insurance Company, Family Security Insurance Company, Interboro Insurance Company and BlueLine Cayman Holdings only have a first event retention of $60 million in the state of Florida and $25 million in other states which, representing 11% and 4.6% of group equity respectively. The second event retention is $25 million across all states.

Additionally, UPC Insurance opted for 45% coverage from the Florida Hurricane Catastrophe Fund (FHCF) for all its subsidiaries with Florida exposure, which it estimates will provide roughly $907 million of aggregate reinsurance protection across three FHCF contracts, which all inure to the benefit of the open market reinsurance protection.

The private reinsurance program has all been structured in a cascading fashion, so each layer will drop down as layers beneath are exhausted, leaving no potential gaps in coverage up to the $3.1 billion program exhaustion point, the insurer explained.

Cost wise, the program does look a bit more expensive this year, with United quoting a $374 million total cost for the catastrophe reinsurance program for 2018 and 2019.

The program is 10% larger than it was a year ago ($3.1bn compared to $2.8bn) but the cost is actually up 19% ($374m compared to $314m).

So on a per-unit of risk transfer basis the cost has increased, but this year United has greater coverage for its Blueline subsidiary and the enlarged FHCF layer will have amplified the costs as well.

Through the new Armor Re cat bond and the collateralized participation in the reinsurance program, United continues to reply on the ILS market for a significant proportion of its coverage.

Also of note, UPC announced in early 2018 that it had consolidated its two quota share arrangements into a new, 20% quota share at the key January 1st, 2018 reinsurance renewals, which later transpired to have shifted this portion of its reinsurance arrangements to Munich Re, Transatlantic Reinsurance Company (TransRe), and General Reinsurance Corporation (Gen Re).

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