United (UPC) takes catastrophe reinsurance program to $4bn at renewal

Changes made to its reinsurance program tower have allowed United Insurance Holdings (UPC Insurance) to take its total catastrophe reinsurance limit to a new high of $4 billion, while also providing better cascading, multi-year and quota share protection.

Executives of the Florida headquartered primary insurer United (UPC) said previously that the renewal would see the firm buying more reinsurance protection, although helped by a doubling of its participation in the Florida Hurricane Catastrophe Fund (FHCF) to 90%.

At the same time, United (UPC) also renegotiated the terms of its core quota share reinsurance arrangement, extending the coverage it provides and at improved terms at this renewal.

The end result is a catastrophe reinsurance tower, including the core program and coverage for subsidiaries Journey Insurance Company and Blue Line, that extends to $4 billion for 2019/20, which is $300 million or 8.1% up from the prior year.

The tower consists of now roughly $1.5 billion of reinsurance provided by the 90% FHCF participation, covering American Coastal Insurance Company, Family Security Insurance Company, Journey Insurance Company, and United Property and Casualty Insurance Company, with these Florida only reinsurance contracts having a variety of retentions and limits.

That left United (UPC) needing $2.5 billion of open market reinsurance coverage, which it has secured for named or numbered windstorms and earthquake in all states in which UPC Insurance.

In addition to the expansion of the program, with the help and assistance of much greater FHCF participation, United (UPC) has also increased its core multi-event cascading catastrophe reinsurance limit to $3.2 billion for hte 2019/20 year.

That’s $76 million more cascading reinsurance limit than the group had a year earlier, which it says is sufficient for a 1-in-400 year event, or a 1-in-100 year event followed by a 1-in-50 year event in the same season.

This cascading limit piece of the catastrophe reinsurance tower drops down in subsequent events ensuring no gaps in coverage, and covers American Coastal Insurance Company, Family Security Insurance Company, Interboro Insurance Company, and United Property and Casualty Insurance Company.

The insurer has also successfully reduced its per-occurrence and aggregate retention levels, with first event group pre-tax retention down $3 million to $57 million, and second event group pre-tax retention dropping by $5 million to $20 million.

Retention after two events is now $77.2 million, which is down $7.8 million on the prior year as well.

A further enhancement to reinsurance coverage that United (UPC) has achieved at this renewal is the expansion of multi-year catastrophe excess of loss reinsurance limit by $87.5 million to reach $350 million for 2019/20, up from the $262.5 million of multi-year reinsurance limit purchased in the prior year.

Within this is the recently completed Armor Re II 2019-1 catastrophe bond transaction, which secured a less than hoped for $100 million of multi-year catastrophe reinsurance for United (UPC), as the company had initially been targeting $200 million of coverage from the cat bond market.

United (UPC) has also renegotiated its core quota share reinsurance arrangement, which had originally been entered into as a 20% Q/S with major reinsurance firms Munich Re, Transatlantic Reinsurance Company (TransRe), and General Reinsurance Corporation (Gen Re).

After renegotiation for June 1st, the quota share now features expanded coverage to include both United Property and Casualty Insurance Company and Family Security Insurance Company, while also having a 12 month term and an increased cession rate of 22.5% for all subject business, which includes impacts from catastrophe perils and attritional losses.

More than 90% of the limit in the $4 billion reinsurance tower and associated coverage is provided by reinsurers with an ‘A+’ or better A.M. Best financial strength rating or has been fully collateralized by capital markets backed players.

For all of this expanded reinsurance protection, United (UPC) has not paid a huge increase in rates, it seems, with the company saying that the costs of its reinsurance have risen at a slower rate than the growth in its insurance premiums in force.

For 2019/20 and this $4 billion of catastrophe reinsurance limit, the insurer has paid $377.3 million, only $2
million or 0.52% up from the prior year. Over the last year in-force premiums have risen 12% to reach $1.28 billion, up from $1.14 billion in the prior year.

That means the 2019/20 catastrophe excess of loss reinsurance program cost United (UPC) 29.5% of the 3/31/19 in-force premium, lower than the 32.9% of the 3/31/18 in-force premium paid in the prior year.

“I’m very proud of the tremendous support we received from our reinsurance partners and the hard work of our entire leadership team to make this year’s placement successful,” said Brad Martz, Chief Financial Officer of UPC Insurance. “The Company’s reinsurance programs have continued to evolve in support of our growth and provide robust protection against the frequency and severity of catastrophe events for our shareholders.”

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