Selective Insurance has disclosed that it successfully renewed its property catastrophe reinsurance program effective January 1 2024, going to market with a $1.1 billion limit in excess of a $100 million retention, compared to its expiring $915 million limit in excess of a $60 million retention.
“While the expiring program had various co-participations, we fully placed all layers in the new treaty. The increase in retention is largely comparable with the growth in our property portfolio and reflects our ability to retain more losses,” explained Anthony Harnett, Selective Interim CFO.
He continued, “A 1-in-250-year net probable maximum loss is now only 4% of GAAP equity for our peak peril of U.S. hurricane.
“This is well within our risk tolerance and 3 percentage points lower than last year’s 7%. The increased limit repurchase reflects our business’ strong growth and expected future growth. We had modest risk-adjusted pricing increases consistent with the overall market. We also achieved our marketed key terms and conditions.”
Discussing the key drivers for increasing the retention from $60 million to $100 million, John Marchioni, Selective President and CEO, said, “The majority of reinsurers have established a threshold of 1-in-10-year attachment points. Generally speaking, they wanted to get out of the earnings volatility business, and they generally didn’t want to play below 1-in-10.
“Our current attachment point is right around 1-in-7, so it’s still a little bit lower than where the majority of reinsurers like to play. But as we do every year, we’re evaluating expected ceded premium by layer versus expected ceded losses by layer, and that has been a good economic trade for us for a long time.
“Based on how pricing has moved, we decided to increase that retention last year. We also only placed about half of the first layer last year, so, it was a $60 million attachment, but we were taking half of the first 40 excess of 60.
“So, really, for all practical purposes, it went from an $80 million retention to $100 million retention. And that’s really what drove it from our perspective was market capacity has started to get a little bit tighter at that attachment point and then the pricing from our perspective wasn’t as favourable.”
Marchioni concluded that all in, Selective was able to eliminate all co-participations throughout the program in addition to increasing the limit and entering into its first catastrophe bond transaction through High Point Re Limited.
Aforementioned Harnett noted that the transaction received strong support in providing a new and valuable source of fully collateralised reinsurance capital from a broad panel of investors.
Harnett added, “The transaction was upsized by 62.5% to $325 million from the initial $200 million target. Pricing was within the initial guided range. The coverage sits with the top layer of our program at $500 million in excess of $700 million and provides 65% of that layer’s limit.”
