Universal completes $3bn reinsurance tower, Nephila among lead markets


Florida headquartered primary insurer Universal Insurance Holdings has successfully completed the placement of its 2018-2019 reinsurance program, which extends the top of its tower to $3 billion of coverage, while adding more multi-year protection as well.

The largest insurance-linked securities (ILS) fund investment manager Nephila Capital is among the lead participants in Universal’s latest reinsurance renewal, which provides coverage for Universal subsidiaries Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC).

Last year, Universal’s reinsurance tower only provided coverage up to a $2.65 billion loss, but for 2018 and beyond the insurer has purchased more coverage, extending the top of the reinsurance tower to cover up to $3 billion in losses, while still only retaining the first $35 million for a Florida loss and $5 million for other states, the same catastrophe retention rates as last year.

Universal had already said that it expected to maintain its retention and buy more coverage, which it expected to achieve at lower rates than it saw in 2017.

Nephila Capital, through a fronted arrangement with Allianz Risk Transfer, is among the largest private participants in the Universal subsidiaries’ reinsurance programs, alongside Everest Re, RenaissanceRe, Chubb Tempest Re and Lloyd’s of London syndicates.

Other ILS fund managers will also be participating throughout the program, although Universal does not provide details on the full panel.

“We are pleased with the completion and outcome of the 2018-2019 reinsurance programs for both of our insurance companies,” commented Jon W. Springer, President and Chief Risk Officer of Universal. “With this renewal, the first following the impact of a major hurricane on Florida and other Southeastern states this past September, we have continued building on the recent trend of adding additional conservatism to our reinsurance programs while decreasing the percentage of premium spent on reinsurance.  Importantly, we accomplished this goal while maintaining all our core relationships with our reinsurance partners who paid catastrophe losses in 2017 as a result of Hurricane Irma.”

Impressively, with Universal’s catastrophe retention remaining static year-on-year, it means the company is exposed to a smaller potential loss, given the insurer has grown its total insured values at risk significantly last year, increasing them by 17% in all operating states and 46% in states other than Florida.

Springer explained, “A $35 million retention loss would now represent just 5.6% on an after tax basis of UVE’s stockholder’s equity as of March 31, 2018.”

Last year, the Universal UPCIC reinsurance tower only extended up to $2.65 billion, but for the 2018 and 2019 the company has purchased $350 million more coverage, to take the top of the tower up to $3 billion, which represents a 1-in-300 year loss, up from a 1-in-272 year loss event that the previous year’s tower covered.

Springer also noted that, “Importantly, $1.00 billion of this coverage has limits that automatically reinstate to ensure protection in multi-event scenarios.”

Additionally, Springer explained on the UPCIC reinsurance tower that, “UPCIC has also now successfully secured over $365 million of catastrophe capacity with contractually agreed limits that extend coverage to the 2019 wind season or beyond.  All $365 million of this multi-year capacity is below the Florida Hurricane Catastrophe Fund layer, where reinsurance costs are the highest.”

That will ensure protection through this year and beyond, importantly also locking in pricing on reinsurance at this year’s rates, likely relatively flat with the prior year. Should 2018 turn out to be another bad hurricane season then rates could easily rise into 2019, making multi-year coverage a priority for many at this year’s June renewals.

Universals’ other insurer subsidiary APPCIC also maintained its catastrophe retention at the same level as the prior year, at $2 million, while extending the top of its reinsurance tower.

Springer explained that this company came out of the renewal after, “Expanding the top of its reinsurance tower for a single event by 24% more than last year’s top end at the time of placement as the newly established commercial lines program continues to grow at a modest pace.”

For firms like Universal the availability of abundant and efficient reinsurance capacity has been a key driver of growth, enabling insurers like this to expand while safe in the knowledge that their retentions are low and coverage extends sufficiently high to cover the majority of modelled storm outcomes.

This provides the security to allow companies like Universal to grow into other states, a process that continues and will likely drive continued growth in the firms reinsurance program over the coming years.

Springer explained the importance of its reinsurance counterparties, saying, “In completing the 2018 renewal cycle, it is clear that our panel of leading reinsurance partners is eager to partner with companies like Universal, who are financially stable, have a strong infrastructure and can efficiently handle a large volume of claims from a major catastrophe. The continued support of these partners has helped put us in the strongest position in our company’s history as we enter the 2018 hurricane season.”

Universal did not comment on the final pricing of its reinsurance tower, but it is likely that by bringing more risk to market the firm has been able to secure at least flat renewal pricing, perhaps the lower pricing it had recently forecasted.

The capital markets continue to play a vital role in enabling catastrophe exposed property insurers, like Universal, to expand their portfolios of risk safe in the knowledge that they have robust and efficient reinsurance capital behind them.

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