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Universal’s 2023 reinsurance largely insulated from pricing dynamics: CEO Donaghy


Universal Insurance Holdings, the Florida headquartered primary insurance carrier, hopes that its reinsurance strategy will insulate it from many of the hardening pricing dynamics being seen in the open marketplace, its CEO has said.

universal-insurance-logoIn announcing its third-quarter results late yesterday, in which it revealed a net loss of almost $72.3 million and a combined ratio of 139.2%, largely due to the impacts of hurricane Ian, the insurers’ CEO provided a forward-look towards its 2023 reinsurance renewals.

As a reminder, Universal had already pre-announced an expectation of experiencing around $1 billion of gross losses due to major hurricane Ian.

The impact from hurricane Ian is expected to fall well within Univeral’s reinsurance tower, which provides the company with coverage to just over $3 billion and this was reiterated in the results statement.

The company said that $111 million of losses from hurricane Ian were retained in the period.

Positively though, core revenue was $316.7 million, which increased 10.5% from the prior year quarter, while direct premiums written reached $500.7 million, up 15.6%.

So far, Universal’s claims burden from hurricane Ian seems to be building relatively slowly.

Stephen J. Donaghy, Chief Executive Officer explained, “Since landfall, we’ve had boots on the ground, helping our insureds in their time of need. As we recently disclosed, our portfolio is underweight in the most impacted regions and is further cushioned by our high proportion of condo unit and renters policies, which provide interior and contents coverage. To date, claims volume from Hurricane Ian reflects approximately 50% of Irma’s volume received at this point. We maintain one of the largest claims and legal teams in the state of Florida, providing us with significant resources and capacity to efficiently close Ian-related claims.”

Commenting on the losses expected, Donaghy explained that despite the hit and the expectation of reinsurance recoveries, Universal is still well-protected.

He said, “Despite our $1 billion estimated gross loss from Hurricane Ian, we have a $3 billion reinsurance tower in place for a subsequent event in the 2022 Atlantic hurricane season and our consolidated retention would be meaningfully lower, highlighting the strength and breadth of our catastrophe reinsurance program.”

According to Universal’s results, $915.2 million of weather-related losses were ceded to its reinsurers in Q3.

The insurer is already planning its reinsurance arrangements for the 2023 hurricane season, with this process beginning early to navigate an increasingly challenging marketplace.

“We’ve started the planning process for the 2023 Atlantic hurricane season and are already well underway, as we have almost $400 million of pre-negotiated multi-year capacity below the Florida Hurricane Catastrophe Fund’s (FHCF) attachment point, approximately $200 million of estimated cost free coverage from the Reinsurance to Assist Policyholders (RAP) program and a projected $150 million from our catastrophe bond,” Donaghy explained.

Universal’s UPCIC carrier also has the Cosaint Re Pte. Ltd catastrophe bond in place to provide one limit of $150 million of reinsurance against US named storm losses.

The Cosaint Re cat bond had an attachment point at just over $1.1 billion of losses, for the first annual risk period. We don’t know how that might have been reset for this year.

As we explained in our article earlier this week where we detailed some of the cat bonds considered at-risk after hurricane Ian, the Cosaint Re cat bond notes had been marked down for bids as low as between 5 and 15 cents on the dollar.

Now, there is some divergence, with the Cosaint Re cat bond still marked down heavily on some pricing sheets, but less so on others. Still, it appears to be marked down at least around 20% across the market, as of last Friday’s pricing.

CEO Donaghy is confident that Universal stands well-positioned to secure the reinsurance it needs and not to be too impacted by market hardening.

“Coupled with our 90% participation in the FHCF, we estimate that the vast majority of our first event 2023 catastrophe reinsurance program will be insulated from open market pricing dynamics. We value our reinsurance partner relationships and appreciate their support,” he explained.

Those carriers with multi-year protection are likely well-positioned for the 2023 reinsurance renewals in Florida and for other coastal US risks, with Universal one of the biggest buyers in the cat-exposed property specialist bracket of the market.

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