Universal Insurance Holdings, the Florida headquartered and expansive primary insurance provider, has completed what it said was a time consuming reinsurance renewal, with ILS capital featuring heavily as usual.
Universal has been a significant user of alternative reinsurance capital from insurance-linked securities (ILS) funds and other collateralized sources over the years.
For its 2019 into 2020 reinsurance program the company said that is has secured the largest amount of reinsurance protection in the history of the group, better protecting its Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC) subsidiaries against catastrophe losses.
The top-level of the UPCIC reinsurance tower now covers losses up to the 1-in-300 year level (based on RMS modelling estimates), which is significantly above where the rating agencies expect reinsurance protection to run up to.
The Universal reinsurance tower now provides the insurer with protection against a single Florida event running to a $3.28 billion loss, which is up $134 million over the final 2018-2019 program protection.
In addition, more multi-year reinsurance has also been added, as UPCIC secured $222.6 million of new catastrophe capacity with contractually agreed limits extending up to the 2020 hurricane season or beyond.
In fact, UPCIC now has $382.6 million of multi-year reinsurance coverage, all of which sits below the Florida Hurricane Catastrophe Fund layer, where reinsurance costs are typically the highest.
Also benefiting the insurer is $1.3 billion of reinsurance which have limits that automatically reinstate, providing protection for scenarios where multiple major catastrophe event losses hit the company.
At the same time, the costs of reinsurance coverage have not risen significantly for Universal it seems, despite reports that the Florida market is seeing rates rising on average in the mid-teens at this renewal, while in some cases rate increases have been higher.
Universal said that the total cost of the UPCIC and APPCIC reinsurance programs is expected to be approximately 33.3% of estimated direct earned premium for the 12-month treaty period, up slightly on the 31.2% seen at the same stage last year.
This reflects a 6.7% year-over-year increase in costs for the reinsurance program, which given the program is also larger than ever before and covers Universal to a higher return-period of loss, suggests the insurer has secured competitive pricing in what has been a more challenged renewal season.
CEO of Universal Jon Springer acknowledged these challenges at the Florida reinsurance renewal in 2019, saying, “While this renewal process consumed a greater period of time than prior years, we are pleased with the end result. We respect our reinsurance partners’ evolving view of risk and see the pricing level changes as reasonable given the recent loss experience.”
He said that the company is pleased to announce the outcome of these renewals, emphasising that, “Importantly, we successfully secured more catastrophe coverage than at any point in the history of the Company while maintaining our core relationships with our reinsurance partners.”
Those core reinsurance partners continue to feature ILS market players backed by the capital markets and reinsurers using elements of third-party capital or who will have ceded a portion of their share to third-party capital backed vehicles.
Among the largest reinsurance counterparties in the program are Florida and U.S. wind exposed state stalwarts ILS investment manager Nephila Capital (writing via fronting from Allianz Risk Transfer), Everest Re, RenaissanceRe, Munich Re, Arch Re, Chubb Tempest Re and Lloyd’s of London syndicates, all of which come in A+ rated or higher.
Other ILS players likely participated, but the full program counterparty panel has not yet been revealed by Universal.
Also of note in the new reinsurance program for Universal, the insurer UPCIC has raised its first event retention for a Florida catastrophe from $35 million to $43 million.
It’s the first increase in retention since 2015 and follows several years of growing total insured values in the state for Universal. UPCIC also increased its first event catastrophe retention for a loss involving states other than Florida from $5 million to $10 million, a change which follows three years of growing total insured value by more than 30% each year.
That’s a sign of the ongoing expansion of Universal, as the insurer moves into new states which provide greater diversification as well, enabling it to write more business, but also to do so with higher retention levels as its peak exposure spreads further across multiple states.
In time, as the insurers growth and expansion likely continue, this will help the company to also buy its reinsurance more efficiently as well, as its peak exposure to Florida will be moderated somewhat by its ventures into other states, on a diversified basis.
Universal’s renewal is a sign that not everyone has been significantly penalised, in terms of price, although the increases seen encouragingly appear to have been more than willingly paid by this insurer that relies on the availability of reinsurance and ILS capital to support its cat exposed business model.
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