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UPC secures $4bn of reinsurance, expands coverage

4th June 2019 - Author: Luke Gallin

United Insurance Holdings (UPC Insurance) has announced the completion of its 2019/2020 catastrophe reinsurance programs, revealing the purchase of additional limit at only a very slight increase in cost, when compared with its 2018/2019 programs.

The 2019/2020 catastrophe reinsurance programs are effective June 1st, 2019 and were renewed through UPC Insurance’s subsidiaries, American Coastal Insurance Company, Family Security Insurance Company, Interboro Insurance Company, Journey Insurance Company, United Property and Casualty Insurance Company, and BlueLine.

In total, UPC Insurance purchased $4 billion of total reinsurance limit for this year’s programs, up $300 million, or more than 8% on the $3.7 billion purchased a year earlier. This includes $3.2 billion of core multi-event cascading reinsurance limit, which is up from the $3.1 billion of limit purchased a year earlier, and also separate covers for Journey Insurance Company and BlueLine.

For this year, UPC Insurance has doubled its FHCF participation from the minimum 45% to the maximum 90% coverage level, which it estimates will provide roughly $1.5 billion of total Florida-only coverage. This means that UPC Insurance’s total open market catastrophe reinsurance limit for its 2019/2020 programs is $2.5 billion, which provides coverage for named or numbered windstorms and earthquake in all states in which UPC Insurance operates.

In contrast, last year, the firm said that its 45% FHCF participation was likely to provide around $907 million of coverage, adding that it had secured $2.185 billion of aggregate open market catastrophe reinsurance protection.

The larger, core multi-event cascading reinsurance program provides sufficient coverage for a 1-in-400 year event; sufficient coverage for a 1-in-100 year event followed by a 1-in-50 year event in the same season. The cascading structure of the program means that the open market limit drops down in subsequent events, designed to eliminate coverage gaps.

Under this program, the first-event group pre-tax retention has declined by $3 million to $57 million, which is 10.6% of Q1 2019 GAAP equity, a decline from 11.2% a year earlier. The second event group pre-tax retention has also declined, by 20% to $20 million, while the group pre-tax retention after two events fell by almost $8 million, to $77.2 million.

UPC Insurance also has multi-year catastrophe excess of loss reinsurance in place, and for the 2019/2020 year this increased by $87.5 million to $350 million, and includes the successful completion of its $100 million Armor Re II (Series 2019-1) catastrophe bond transaction.

The firm also renewed its quota share agreement with private reinsurers, which expands coverage to include both United Property and Casualty Insurance Company and Family Security Insurance Company.

Overall, UPC Insurance’s 2019/2020 catastrophe excess of loss reinsurance programs cost $377.3 million, which is only an increase of $2 million on last year. The firm states that the total cost of this year’s programs is 29.5% of its in force-premium as at the end of March 2019, down 32.9% on the last year.

“I’m very proud of the tremendous support we received from our reinsurance partners and the hard work of our entire leadership team to make this year’s placement successful. The Company’s reinsurance programs have continued to evolve in support of our growth and provide robust protection against the frequency and severity of catastrophe events for our shareholders,” said the firm’s Chief Financial Officer (CFO), Brad Martz.

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