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FHCF renews $920m program. Swiss Re now largest market, as RenRe downsizes

21st August 2019 - Author: Steve Evans

The Florida Hurricane Catastrophe Fund (FHCF) has renewed its reinsurance program for 2019 at a slightly smaller size of $920 million, but with flat risk-adjusted pricing.

Map of FloridaSwiss Re is now the largest participating market in the FHCF’s reinsurance program, as the reinsurer took the same $185 million slice as the prior year.

But RenaissanceRe, which led the program renewal as the largest participant in 2018 and 2017, has downsized its participation significantly.

The FHCF renewed a $920 million reinsurance program for the 2019 season at what it said were “competitive and cost effective terms”, an $80 million decrease from the $1 billion program secured in previous years.

Commenting on the successful renewal, Ash Williams, Executive Director & Chief Investment Officer of the State Board of Administration said, “The SBA has optimized the FHCF’s capital structure and transferred nearly $1 billion of risk for the current contract year by successfully completing a reinsurance placement for the benefit of the FHCF and all Floridians. The FHCF starts the 2019 hurricane season in a strong financial position with $13.75 billion in total liquid resources available to pay claims up to its statutory limit of $17 billion.”

The 2019-20 FHCF reinsurance program will have the same attachment point as last years, at $10.5 billion of Florida losses to the Cat Fund.

The initial cost to the FHCF for the coverage has risen very slightly, to $63.5 million (from $63m in 2018), but this could come down once final FHCF reimbursement premiums are known at the end of this year.

The FHCF said that the impact to its rates would be lower than last year, at $25.6 million which is a reduction of $2.1 million year-on-year.

Despite the fact the program shrank to $920 million and the cost is forecast a little higher, the FHCF said that the 2019 reinsurance renewal was achieved at flat pricing, compared to 2018, on a risk-adjusted basis.

The reason is that the risk has actually risen in the program, as there has been an increase in reported insurance company exposure of 3.7%, a change in average coverage selection from 73.5% to 81.6% and a statutory change in loss adjustment expense from 5% to 10%.

Advisor to the FHCF Raymond James explained, “By all indications, the pricing and terms of the FHCF’s 2019 reinsurance program placement at a risk-adjusted flat rate-on-line compared to its 2018 placement are very positive in light of the tightening risk transfer market conditions. By executing the 2019 reinsurance program, the FHCF was again able to transfer a part of the risk to global markets, expand its liquidity, diversify its claims-paying resources, and continue to strengthen its capital position, thereby decreasing the amount of any potential assessments on Florida citizens.”

Backing the FHCF reinsurance program is a globally diversified panel of 37 reinsurers, the majority of which are rated, with just $50 million of the program being collateralized.

Swiss Re has now become the largest market participating in the FHCF program, although it has not changed the size of its share.

Swiss Re underwrote $185 million of the reinsurance program for the FHCF in both 2018 and 2019, which now makes it the lead on this years renewal after RenaissanceRe significantly downsized its share.

RenaissanceRe (RenRe) had taken $262.5 million of the FHCF program through its Bermuda reinsurer and another $30 million through its Lloyd’s of London syndicate 1458 in 2018, plus $82.5 million through its DaVinciRe joint-venture vehicle.

In 2019, RenRe has clearly found other sources to fill its Florida bucket, as the reinsurer took just $175 million through its Bermuda reinsurance platform and another $75 million through DaVinci Re Ltd.

Of course, it’s possible that the FHCF wanted to achieve better counterparty diversification in 2019 as well, which could account for some of the program changes.

Another large traditional reinsurance market line came from Arch Capital, which took $60 million using Arch Re Ltd. AIG’s reinsurer Validus Re Ltd. also took a $50 million line as well.

The insurance-linked securities (ILS) market also took a larger share of the program than in 2019, as one large $100 million line was underwritten by Transatlantic Re fronting for the ILS fund manager Fermat Capital Management, while private banking group and asset manager LGT took $50 million for its ILS funds using its rated Lumen Re Ltd. reinsurance vehicle, and Nephila Capital took $30 million fronted by Allianz.

The full list of program participants and line sizes can be seen below:

United States:

‒ American Agricultural Ins (OH) – $1m
‒ American Standard Ins Co of WI – $15m
‒ Everest Re Co – $10m
‒ Munich Re America Inc – $10m
‒ Swiss Re America Corp – $185m
‒ Transatlantic Re – $5m
‒ Transatlantic Re (obo Fermat) -$100m

Europe:

‒ Allianz Risk Transfer AG (obo Nephila) – $30m
‒ Hannover Rueck (obo Elementum) – $6m
‒ Satec Srl/New Re – $1.5m

Bermuda:

‒ Arch Re Ltd – $60m
‒ Ariel Re Bda/Argo Re – $10m
‒ Chubb Tempest Re – $20m
‒ DaVinci Re Ltd – $75m
‒ Hannover Re (Bermuda) Ltd – $6m
‒ Hiscox Ins Co (BDA) Ltd – $10m
‒ Lumen Re Ltd – $50m
‒ Markel Bermuda – $5m
‒ Qatar Re Ltd – $5m
‒ Renaissance Re Ltd – $175m
‒ Validus Re Ltd – $50m
‒ XL Bermuda Ltd – $15m

United Kingdom:

‒ Lloyd’s Syndicate 0033 (HIS) – $5m
‒ Lloyd’s Syndicate 0609 (AUW) – $2m
‒ Lloyd’s Syndicate 0623 (AFB) – $0.9m
‒ Lloyd’s Syndicate 1183 (TAL) – $5m
‒ Lloyd’s Syndicate 1274 (AUL) – $2m
‒ Lloyd’s Syndicate 1414 (ASC) – $10m
‒ Lloyd’s Syndicate 1910 (ARE) – $10m
‒ Lloyd’s Syndicate 2014(ACA) – $5m
‒ Lloyd’s Syndicate 2623 (AFB) – $4.1m
‒ Lloyd’s Syndicate 2791 (MAP) – $5m
‒ Lloyd’s Syndicate 4020 (ARK) – $1m
‒ Liberty Mutual Paris/ Lloyd’s Synd 4472 – $6m

Asia:

‒ Korean Re Co – $12m
‒ New India Assurance Co. Ltd – $2.5m
‒ Taiping Re Co Ltd (HK) – $5m

TOTAL: $920 million

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