Florida headquartered, expansive primary insurer United Insurance Holdings (UPC Insurance) has already renewed more than 85% of its core catastrophe reinsurance program that renews at June 1st, as it hopes to insulate itself against price increases by getting to market early.
The insurer has proven itself a savvy reinsurance buyer over the years, mixing sources of traditional and collateralised capacity and placing a significant chunk of its reinsurance program needs with insurance-linked securities (ILS) funds.
In 2020, the insurer has already renewed a range of reinsurance treaties at the January 1 renewals, securing its aggregate excess of loss reinsurance covering frequency events, its all other perils catastrophe excess of loss agreement and a personal property excess per risk reinsurance agreement.
But United (UPC) has been busy since then and by getting out early into the market the insurer hopes to have mitigated any impact from price increases at the June renewals, by helping reinsurance and ILS players to allocate capital early to much of its renewal needs.
In fact, United (UPC) said that it has already secured more than 85% of its core catastrophe reinsurance program needs, that would typically be placed in June, in advance of the renewals.
“Exposure to pricing increases at 6/1/20 will be limited,” the insurer announced, saying that more than 85% of its needed June 1st reinsurance capacity has already been placed.
With its June reinsurance renewal almost completed already, United (UPC) said that its, “Exposure to reinsurance cost increases in 2020 is substantially lower than the industry overall due to advance planning and strong partnerships with reinsurers.
The market is expecting Florida and wind exposed U.S. property catastrophe reinsurance rates will rise at the June and July 2020 renewals, perhaps significantly in some cases.
With Florida focused insurers having continued to send hurricane Irma loss creep towards the reinsurance market in the second-half of 2019, the expectation is that rate increases at 6/1 2020 will be steeper than seen at the middle of 2019.
Getting out into the reinsurance market early is one way to ward off the impacts of rate increases, or at least to avoid the worst of them.
By presenting your program outside of the typical renewal rush of submissions, it gives markets time to digest and come back with perhaps more reasonable pricing, as they can focus on your renewal as a distinct opportunity, not coloured by the rest of the renewal noise.
There are always benefits to be had by breaking out of the renewal cycle, as some capacity providers, especially ILS funds, appreciate the opportunity to add new risks to their portfolios away from the few times of the year when demand is higher and so capital raise pressure on investors also higher.
As well as its core catastrophe reinsurance program, that is already nearly fully placed, United (UPC) has a range of other reinsurance to renew in time for June 1st.
In total, the insurer requires over $3.331 billion of total limit, some of which is already secured through its participation in the Florida Hurricane Catastrophe Fund (FHCF) and via retentions.
That left around $1.56 billion of reinsurance limit needed from the open market and the company has already placed some $1.08 billion, amounting to close to 70% of its overall June 1st reinsurance renewal needs.
So to complete its reinsurance program for June 1st, United (UPC) now needs just over $478 million of fresh limit to be placed.
One of United’s (UPC) in-force catastrophe bonds is set to mature at the end of May 2020, the Armor Re II Ltd. (Series 2018-1) transaction, meaning a $100 million slice of its first event catastrophe program from the capital markets is also up for renewal.
There is a good chance that the insurer looks to renew this in the catastrophe bond market and we could see the company getting out early in the coming weeks to secure that before the inevitable late-Q2 rush.
Looking ahead, John Forney, President & CEO of UPC Insurance commented, “We are starting 2020 in a very strong position with regard to our rate actions, reserve strength, capital adequacy and reinsurance placement. I’m excited for what lies ahead in 2020 and beyond.”
We’re told other cat exposed U.S. insurers have also been filling some smaller segments of their reinsurance programs early this year, perhaps suggesting a trend towards becoming less tied to the traditional renewal dates.
With more markets prepared to offer firm order terms in advance of the renewal date, it makes sense for brokers to spread out their approaches to the market in order to secure the best pricing for their reinsurance buyer clients.
We’d hope to see the advent of technology platforms for placing reinsurance programs making a big difference and driving the trend in this regard as well. Given cedents can place chunks of their reinsurance programs at any time of the year now, offering risk to panels of reinsurance and ILS markets using platforms such as Tremor, that can optimise the syndication to secure the best placement for them.