Universal Insurance Holdings, a Florida headquartered and expansive primary insurance carrier, has secured the largest private market catastrophe reinsurance renewal in its history, with capital market support again evident and Nephila Capital a key participant.
The insurance carrier group has bought a catastrophe reinsurance tower that extends up to $3.26 billion of coverage, $1.3 billion of which have limits that will automatically reinstate, providing Universal and its subsidiaries with protection for scenarios where multiple major catastrophe event losses occur.
The first-event tower is actually very slightly smaller than last year’s, when it extended up to $3.28 billion, but changes in Universal’s reinsurance arrangements for its carrier subsidiaries Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC) mean that it has purchased much more catastrophe reinsurance from the market this year.
The tower for the 2020 wind season is still sufficient to cover a 1-in-300 year loss, according to modelling, but Universal has made its protection more robust with additions in the form of multi-year protection and has less capacity provided from the Florida Hurricane Catastrophe Fund (FHCF), which means more private limit has been bought at this renewal.
“We are pleased to announce the completion and outcome of the 2020-2021 reinsurance programs for both of our insurance companies,” explained Jon W. Springer, President and Chief Risk Officer of the Company. “We are in unprecedented times and our reinsurance partners have once again provided us with the comprehensive reinsurance we desire for the 2020 hurricane season in the face of tremendous financial uncertainty across the global markets.”
As ever, Universal has secured a significant chunk of its catastrophe reinsurance capacity for this year from capital markets sources through insurance-linked securities (ILS) funds.
The insurer said that its largest reinsurance counterparties were ILS investment manager Nephila Capital via Allianz Risk Transfer, reinsurer and third-party capital manager RenaissanceRe, as well as more traditional players Munich Re, Arch Re, Chubb Tempest Re and Lloyd’s of London syndicates.
The rest of the reinsurance program panel has not been disclosed, but it’s almost certain to contain a number of the largest ILS fund managers, potentially both on a fronted and collateralised basis.
The company’s Universal Property & Casualty Insurance Company (UPCIC) subsidiary bought the most reinsurance protection in its history, partly due to less capacity provided from the FHCF, but also due to an expanded need for reinstatement premium protection, Universal explained.
UPCIC has added $197 million of new multi-year catastrophe reinsurance at this renewal, with coverage extending through to the end of the 2022 hurricane season.
In total, UPCIC now has $420 million of multi-year catastrophe reinsurance capacity, extending coverage to include the 2021 wind season or beyond.
All of this multi-year coverage sits lower down in the tower, in the more working layers below the FHCF coverage, where reinsurance costs are the highest and it makes the most sense to lock protection in over multiple seasons.
UPCIC’s kept its first event catastrophe retention for a Florida loss at $43 million at the renewal, which would represent a loss of under 6.4% on an after-tax basis of UVE’s stockholder’s equity as of March 31st 2020, the company said.
UPCIC also increased its first event catastrophe retention for losses in states outside of Florida from $10 million to $15 million. This change was made due to its expansion outside of its home turf of Florida, with premium in-force in other states rising by more than 25% over the past year.
As well as $1.3 billion of catastrophe reinsurance being reinstatable for UPCIC, the insurer will also benefit from specific private market third and fourth event coverages, excess of loss protection of $76 million in excess of $35 million to provide frequency protection for a multiple event storm season.
Universal’s other subsidiary American Platinum Property and Casualty Insurance Company (APPCIC) has a first event retention of $3 million and the first-event tower extends to $41.3 million, with no co-participation.
APPCIC will benefit from full reinstatements for all private market first event catastrophe reinsurance layers, providing second event coverage.
This subsidiary also has multiple line excess per risk reinsurance, providing $8.5 million in excess of $500 thousand ultimate net loss for each risk and each property loss, and $1 million in excess of $0.3 million for each casualty loss.
In terms of the price, with Florida reinsurance rates having firmed considerably, Universal has cited a 4.1% increase in price, as a percentage of earned premium.
At this June 2020 reinsurance renewal, Universal cited costs of 34.6% of estimated direct earned premium for the 12-month treaty period, up from 33.3% at this time last year, reflecting a 4.1% year-over-year increase.
That works out as a total projected cost of $494 million.
Springer commented, saying price increases were reasonable.
Explaining, “We have been significant buyers of peak zone catastrophe reinsurance provided by professional reinsurers for more than 20 years. These reinsurers understand the true nature of reinsurance cycles and the importance of the counterparties they select.
“While our reinsurance costs are justifiably up over last year for a variety of factors, including indirect macro drivers, the changes are reasonable and, importantly, the quality of the coverage purchased for our policyholders remains intact.”