Florida based insurer Universal Insurance Holdings has completed its reinsurance placement, expanding coverage to protect it against multiple major storms or losses, while reducing its costs even further, helped by the participation of key players such as Nephila Capital.
Universal has now achieved its goal of eliminating the quota share from its reinsurance program, allowing the insurer to retain 100% of the premiums from its business while using a range of catastrophe excess reinsurance contracts to protect itself.
The elimination of the quota share has been a trend among some primary players who aim to extract as much of the risk premium from the business they underwrite, rather than handing it off to others. Paying for catastrophe excess allows them to achieve this and in the current rate environment it has become a very attractive option.
“June 1, 2015 marks a milestone for our Company in that we are now retaining 100% of our business,” commented Sean P. Downes, president and CEO of Universal.
“This year, our primary focus was to successfully eliminate the quota share, reassume the unearned premium and protect the Company with the necessary additional catastrophe excess coverage,” Downes explained.
The largest insurance-linked investments manager in the market Nephila Capital remains a key player in the Universal reinsurance program, providing some of the capacity which has helped the insurer to the best protection at the lowest price.
Universal said that the largest private participants in its subsidiaries reinsurance programs include ILS manager Nephila Capital, along with reinsurers Everest Re, Renaissance Re, ACE Tempest Re and syndicates at Lloyd’s of London.
Universal’s announcement on the completion of its reinsurance programme is also a sign that rates have fallen further, while terms have also continued to expand, at the latest renewal season.
Downes said that Universal is “pleased with the completion and outcome of the 2015-2016 reinsurance programs” for both of its insurers, having successfully achieved the goals of eliminating the quota share, re-assuming the premiums and acquiring catastrophe reinsurance at attractive pricing.
Additionally, Downes explained that terms have expanded again, including the acquisition of more multi-year reinsurance and being able to bundle multiple states into a single catastrophe coverage.
“We were also able to improve the multiple year aspects embedded within our catastrophe excess program framework, combine the exposures of all states into a single catastrophe tower and further enhance coverage terms,” he said.
And all of this was achieved at better pricing than was seen at the June 2014 renewal, Downes said; “We did all of this while achieving further cost savings over the 2014-15 period.”
An impressive outcome for the insurer and testament to the lower-cost of reinsurance capital in 2015, after successive rate declines. It is also testament to the increasing use of efficient capital provided by third-parties, which Nephila Capital will certainly have been providing.
It is also possible that there is an element of third-party capital in the protection provided by Everest Re, as it may have used its Mt. Logan Re sidecar alongside its own balance-sheet. Similarly, RenaissanceRe could have put third-party capital to work alongside its own capital for the Universal renewal.
It’s impossible to speculate how much of the program has been ultimately backed by collateralized capacity from third-party investors, likely fronted, but being a major Florida-focused program its safe to assume that a reasonable slice of the program has been.
Perhaps the most impressive fact about the 2015 Universal reinsurance program is the fact that it believes it is now covered for three major losses, larger than three hurricane Andrews. Universal said in a filing that given the multiple event cover that it now has in place it can withstand three loss occurrences of $900m each.
Recent catastrophe modelling indicates that a repeat of hurricane Andrew would cause Universal a loss of around $600m, the insurer explained.
That is an impressive amount of protection for the insurer, with much of it on a multi-year basis. In fact Universal said that it has placed 50% of the catastrophe cover beneath the FHCF on a three-year basis. The insurer also has reinstatements in place, as well as reinstatement premium protection, ensuring continuity of cover.
Universal’s experience is likely to be repeated by other large buyers of catastrophe reinsurance at these renewals. The expectation is that pricing will decline further across the board, although at a slower rate than seen a year ago.
However, the continued ability to acquire better terms and multi-year covers will likely ensure than even if rate-on-line is not declining as fast, insurers are still finding overall cost and value more attractive.
Large ILS markets and capital market players, like Nephila Capital, are also likely to make further headway into core catastrophe markets such as Florida at these renewals, as the coverage they provide via fronting relationships provides an increasingly level playing field for buyers like Universal to choose from.