Florida-based insurtech HCI Group has increased the reinsurance coverage for both its TypTap and Homeowners Choice subsidiaries at the June renewal.
HCI has secured two reinsurance towers for its two insurance subsidiaries by entering into contracts with multiple private reinsurance companies and with the State Board of Administration of Florida, which administers the Florida Hurricane Catastrophe Fund and the Reinsurance to Assist Policyholders program.
Reinsurance Tower 1 covers all Homeowners Choice policies issued in Florida and provides coverage up to $992.8 million for catastrophic losses from a single event in the state.
HCI suggests that this is sufficient to cover its probable maximum loss resulting from a 1 in 318-year storm based on projected exposure at September 30, 2023.
The total coverage for all occurrences is $1.42 billion. Meanwhile, the reinsurance retention for Tower 1 is $12.5 million for both first and second event.
According to HCI, the Florida Hurricane Catastrophe Fund component of the program is estimated to cover 90% of $520.6 million in excess of $242.7 million retention at a total estimated cost of $40.0 million.
Premiums for the private reinsurance component of the program, including coverage provided by Claddaugh, are approximately $126.4 million, assuming no losses occur during the period.
The Reinsurance to Assist Policyholders program (RAP), created by the Florida Legislature, was deferred by Homeowners Choice for the 2022-2023 treaty year. As a result, the company is obligated to utilise RAP coverage for the 2023-2024 treaty year.
The RAP component of the program is estimated to cover 90% of $76.9 million in excess of $173.4 million retention with no premium paid by the company for this coverage.
Effective June 1, 2022, Homeowners Choice entered into a multi-year private reinsurance agreement which included retrospective provisions that adjust premiums in the event losses are minimal or zero. This reinsurance agreement remains in place for the 2023-2024 reinsurance treaty year.
“Like last year and in accordance with generally accepted accounting principles, we will recognise an asset in the period in which the absence of loss experience obligates the reinsurer to pay cash or other consideration under the contract,” HCI explains.
The firm continues, “On the contrary, we will derecognise such asset in the period in which a loss experience arises. Such adjustments to the asset, which accrue throughout the contract term, will negatively impact our operating results if a catastrophic loss event occurs.”
Reinsurance Tower 2 is shared between TypTap and Homeowners Choice and covers all TypTap policies (whether issued in Florida or outside of Florida) and Homeowners Choice policies issued outside of Florida.
Tower 2’s 2023-2024 reinsurance program provides coverage up to $684.2 million for catastrophic losses from a single event in Florida, which is sufficient to cover the company’s probable maximum loss resulting from a 1 in 376-year storm based on projected exposure in Florida at September 30, 2023.
The reinsurance program also provides coverage up to $337 million for catastrophic losses from a single event outside of Florida, which HCI states sufficient to cover the company’s probable maximum loss resulting from a 1 in 208-year storm based on projected exposure outside of Florida at September 30, 2023.
The total coverage for all occurrences is $990.8 million, and the reinsurance retention for Tower 2 is $9.0 million for both first and second event.
Again, the Florida Hurricane Catastrophe Fund component of the program is estimated to cover 90% of $336.1 million in excess of $156.7 million retention at a total estimated cost of $25.8 million.
Premiums for the private reinsurance component of the program, including coverage provided by Claddaugh, are approximately $102.4 million, assuming no losses occur during the period.
The RAP component of the program is estimated to cover 90% of $49.7 million in excess of $112.0 million retention with no premium paid by the company for this coverage.
Claddaugh, HCI’s Class 3A Bermuda reinsurer, selectively participates on certain portions of each reinsurance tower.
HCI notes, “For the 2023-2024 treaty year, Claddaugh has approximately $39.4 million of capital at risk and will collect approximately $28.0 million in premium from our insurance subsidiaries assuming no losses occur during that period.”
HCI expects to incur net consolidated reinsurance premiums ceded to third parties, excluding Claddaugh, of approximately $266.6 million from June 1, 2023, through May 31, 2024, assuming no losses occur during that period.
