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United (UPC Insurance) lowers cat retention, continues to reduce exposure

12th November 2021 - Author: Luke Gallin

United Insurance Holdings Corp. (UPC Insurance), the Florida headquartered but regionally expansive insurer, has reported a narrower net loss for the third quarter of 2021, while its premium base continues to decline amid a retreat from the catastrophe space.

United Insurance Holdings LogoA net loss of $14.3 million marks an improvement on the net loss of $74 million in the prior year quarter, driven mostly by a 53% decrease in loss and loss adjustment expenses (LAE) for the period to $102.8 million.

The net loss ratio improved, year-on-year, by 48.7 percentage points to 67.1%, while the firm’s expense ratio remained unchanged at 49.8%, resulting in a combined ratio for the third quarter of 2021 of 116.9%. Although this is still in unprofitable underwriting territory, it is an improvement on last year’s 164.8% Q3 combined ratio.

UPC Insurance explains that the reason for the reduction in loss and LAE in the quarter, which occurred in spite of it being an active hurricane quarter for the firm, is its choice to lower the retention related to its Core Catastrophe reinsurance program for the 2021-2022 hurricane season.

The firm also highlights a lower frequency of catastrophic weather activity when compared with Q3 2020, and also a rise in ceded losses to its quota share reinsurance program.

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All of this was somewhat offset by a decrease in revenue, driven by increased ceded premium earned as a result of the changes to its quota share reinsurance agreements.

For the third quarter of 2021, UPC Insurance’s total ceding ratio jumped from 46.7% to 56.6%, driven by a number of changes to its existing quota share arrangements.

This includes extending coverage to include American Coastal Insurance Company on its 15% quota share, and increasing the cession percentage by 8%.

Furthermore, UPC Insurance entered into a quota share agreement with Homeowners Choice Property & Casualty Insurance Company, Inc., which provided 69.5% reinsurance coverage on in-force, new and renewal policies in Connecticut, Massachusetts, New Jersey, and Rhode Island.

The firm also entered into a new quota share reinsurance agreement with HCPIC and TypTap Insurance Company, effective June 1st, 2021, which provides 100% reinsurance coverage on in-force, new and renewal policies in Connecticut, Massachusetts, New Jersey, and Rhode Island.

Additionally, the insurer’s 7.5% quota share agreement effective in 2020 expired on May 31st, 2021 and was not renewed.

Alongside all of these changes, UPC Insurance also reduced the retention amounts related to its catastrophe excess of loss reinsurance program for the 2021-2022 season. This resulted in higher ceded premiums, year-on-year, but less risk if the named storm season is as active as the 2020-2021 season.

“Combined with increased costs associated with the all other perils catastrophe agreement, these modifications have resulted in increases to the Company’s ceding ratio quarter over quarter,” says UPC Insurance.

The lower retention suggests that reinsurance protection helped UPC Insurance navigate an active quarter for catastrophes. In fact, over the past year the company has been reducing its gross and net catastrophe exposure, which can be seen in its figures for Q3 2021.

Gross premiums written (GPW) declined by almost 12% to $322.5 million in Q3 2021, while gross premiums earned fell slightly to $353.5 million, and net premiums earned declined by 18.8% to $153.3 million.

Year-on-year, Q3 2021 total revenues fell by 23.5% to $162.7 million.

Dan Peed, Chief Executive Officer (CEO) of UPC Insurance, commented: “The third quarter was an active hurricane quarter resulting in a modest loss, much reduced from last year and in line with expectations for this continuing transition year.

“Over the last year we significantly reduced our gross and net catastrophe exposures, which resulted in a materially reduced hurricane loss for the third quarter. We continue to take steps to improve our underlying profitability including increasing rates, strong exposure management and improved risk selection techniques, as we look forward to a return to a strong underwriting profit.”

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