Business Context and Reporting Period
This Form 8-K, filed on May 27, 2015, by United Insurance Holdings Corp. (operating as UPC Insurance), reports the entry into material definitive reinsurance agreements effective June 1, 2015. The agreements cover UPC's wholly-owned subsidiaries, United Property and Casualty Insurance Company and Family Security Insurance Company, against severe weather events including hurricanes, tropical storms, and tornadoes.
Key Financial Metrics and Program Details
- Total Program Cost: Estimated at $161.4 million for the 2015-16 treaty year.
- Total Coverage Limit: $1.25 billion excess of $25 million retention.
- First Event Coverage: $1.18 billion (equivalent to a 1-in-190 year return period).
- Net Retention: $25 million for named windstorms in Florida; $5 million for named windstorms in all other states; $3 million for all other perils.
- FHCF Participation: Reduced to 45% (approximately $284.1 million coverage), with the remaining 45% replaced by private market coverage.
- Reinsurer Base: Expanded to 35 markets from 26 in the prior program.
Material Changes Versus Prior Period
- Increased Severity Protection: The program offers more severity protection than any prior year, with an overall exhaustion point of $1.27 billion.
- Reduced State Fund Reliance: Participation in the Florida Hurricane Catastrophe Fund (FHCF) was reduced to 45%, with the balance purchased in the private market at significant savings.
- Multi-Year Structure: Portions of layers 1, 2, and 3 are placed on a true multi-year basis with cascading limits.
- New Facility: Added Promissum Re, a fully collateralized facility dedicated exclusively to UPC Insurance that shares profits in a no-loss scenario.
- Extended Coverage: Includes an extended hours clause compared to previous years.
Outlook, Risks, and Management Commentary
Management states the program provides sufficient protection for approximately a 1-in-100 year hurricane event and a second 1-in-50 year hurricane event based on AIR model version 15 long-term event rates. The filing includes forward-looking statements regarding attachment points, total coverage, and costs, which are subject to estimates and assumptions.
Risks and Contingencies: Actual outcomes may differ materially depending on the Florida Hurricane Catastrophe Fund's capacity to pay claims and related adjustment provisions in agreements with the State Board of Administration and private reinsurers. The company secured an optional $95 million layer for second and subsequent events but is under no obligation to activate it.
Investor Verification Checklist
- Verify the actual cost of the $161.4 million reinsurance program against the company's cash flow and liquidity position.
- Confirm the financial strength ratings (A- or higher) or collateralization status of the 35 private reinsurers involved.
- Monitor the Florida State Board of Administration's capacity to fulfill the 45% FHCF obligation.
- Review the specific terms of the Promissum Re profit-sharing arrangement in a no-loss scenario.
- Assess the impact of the $25 million Florida retention on potential earnings volatility during hurricane seasons.