Universal to pass on $50m hurricane Irma loss creep to reinsurance

Florida headquartered primary insurance company Universal Insurance Holdings is set to pass on another $50 million of losses from hurricane Irma to its reinsurance panel, after its gross loss exposure to the catastrophe event increased during the last quarter.

Speaking during the insurers first-quarter earnings call yesterday, President and Chief Risk Officer Jon Springer explained that Universal has increased its estimate of gross losses related to hurricane Irma by $50 million.

The company had already revealed gross losses and loss adjustment expenses of $452 million resulting from Hurricane Irma in its last quarterly results, so this loss creep takes the total to $502 million.

Of the $452 million, Universal has only retained $29.2 million of the losses across both of its insurers with $27.2m at Universal Property & Casualty Insurance Company (UPCIC) and $2m at American Platinum Property and Casualty Insurance Company (APPCIC), thanks to its robust reinsurance program and the help of its risk capital providers which do include ILS funds.

After this $50 million of hurricane Irma loss creep, Universal said that its retained portion of the loss would not increase, meaning the whole $50 million will be passed onto the companies reinsurance panel.

This takes the total loss that Universal’s reinsurance panel has dealt with to $472.8 million for hurricane Irma.

“This change in gross loss estimate will have absolutely no impact on the financials of UPCIC,” explained Springer. “Our comprehensive reinsurance program performed as it was designed and will continue to limit total net loss and LAE from Hurricane Irma to the $27.2 million for UPCIC, and the $2 million for APPCIC, which is below the combined retention of $37 million for both of our insurance subsidiaries, due to additional recoveries received from our UPCIC other states reinsurance program.”

Driving Universal’s hurricane Irma losses higher were the filing of new claims, which was responsible for most of the increase. Even now more than six months after the hurricane, Universal continues to receive claims, which perhaps suggests the market should be ready for ongoing loss creep from hurricane Irma.

Springer said, “We had 10,173 new claims reported during the first-quarter of 2018 and an additional 2,300 during the first three weeks of April, bringing our total claim count to-date to 76,283.”

The insurer has now closed approximately 90% of its hurricane Irma claims at this stage.

Springer also noted that the rate of claims reopened with a resulting change in incurred loss is running at around 14.5%, which while lower than some others in the market, still suggests hurricane Irma loss creep is set to continue.

The capital markets stand to pay a significant share of Universal’s hurricane Irma losses, given the insurer is a heavy user of  ILS and other collateralized reinsurance markets.

Based on the percentage of losses that Universal has ceded to its reinsurance partners, versus retained, it’s clear that the insurers business model relies heavily on global reinsurance and ILS market support.

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