United (UPC) secures cat reinsurance, extends quota share at improved terms

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United Insurance Holdings (UPC Insurance) said it secured $400 million of catastrophe reinsurance limit in loss affected layers of its program that renews in June, while also extending its quota share and negotiating improved terms.

united-insurance-holdingsIn addition, United (UPC) is back in the capital markets with its new catastrophe bond, a $200 million Armor Re II 2019-1 transaction, that will expand its multi-year collateralized reinsurance protection as well.

This all comes at a time when United (UPC) has reduced its open-market reinsurance needs, having elected for a 90% participation in the Florida Hurricane Catastrophe Fund (FHCF) back in March, which the firm’s CEO John Forney said was to “mitigate capacity and pricing uncertainty” in the reinsurance market for this renewal.

In announcing its quarterly results yesterday, United (UPC) said that it had secured $400 million of catastrophe reinsurance limit to cover portions of the loss effected layers of its program, renewing as of June 1st.

In addition, the company has renegotiated its main quota share, which it had originally established as a 20% Q/S with major reinsurance firms Munich Re, Transatlantic Reinsurance Company (TransRe), and General Reinsurance Corporation (Gen Re).

The insurer had extended that quota share to run through until the end of May 2019, as it’s reinsurance needs remained fluid after the impacts of losses and the resulting uncertainty in the global reinsurance and ILS market.

Now the insurer has further increased the effectiveness of the quota share, with CEO John Forney saying yesterday that it has put more catastrophe risk into it, largely named storm coverage which ultimately reduces its reinsurance needs and it has also negotiated improved quota share terms effective as of June 1st.

In fact, the limit coverage provided by this catastrophe quota share arrangement has jumped from around $20 million to now offer $150 million of protection to the insurer.

On the Armor Re II catastrophe bond, Forney explained that the issuance could be slightly larger than the $200 million target, or slightly smaller, depending on market demand.

Overall, with these changes, the higher participation in the cat fund and the new cat bond, United (UPC) only needs to secure an additional $800 million of open market reinsurance at the June renewals.

Forney said that firm order terms are not out yet for this, explaining, “We feel like we’re in really good shape on the core cat program. We placed most of it already and we’ll be releasing firm order terms sometime soon.”

On its relationships with reinsurers and his expectations for pricing at the renewal, Forney said, “They’ve been wonderful partners for us for a long time, on both the collateralized side and the balance-sheet side. We have long-term win-win relationships with them.

“So we’re going to come to a fair price with everybody, that makes sense for them and make sense for us. We went into this with a pricing expectation overall for our program and right now it looks like we’re going to be right on our pricing expectation.”

Finally, Forney explained the pricing dynamics being seen across the market, suggesting that pricing alignment is strong and the need for higher increases driven by markets loss experience.

“We’re not seeing differences in pricing based on whether you’re an ILS reinsurer or a balance-sheet reinsurer,” Forney explained. “We’re seeing differences on pricing that are very idiosyncratic and specific to different reinsurers and what their experience has been the last couple of years. Not necessarily just with Irma, or Florida losses, but with California wildfires and typhoons and all of the other fun stuff that reinsurers have to deal with around the globe. Depending on that individual reinsurer’s experience with that, changes their desire for different rates and it doesn’t seem to have anything, to us, to do with whether you’re ILS or balance sheet.”

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