Business Context and Reporting Period
This Form 8-K, filed on June 4, 2019, by United Insurance Holdings Corp. (operating as UPC Insurance), reports the renewal of catastrophe reinsurance programs effective June 1, 2019. The filing details updates to coverage limits, retention levels, and costs for its insurance subsidiaries, including American Coastal Insurance Company.
Key Financial Metrics and Reinsurance Structure
- Total Catastrophe Reinsurance Limit: Increased to $4.0 billion (up $300 million or 8.1% from the prior year).
- Core Multi-Event Cascading Limit: Increased to over $3.2 billion (up $76 million or 2.43% from the prior year).
- Reinsurance Cost: Total cost for the 2019/20 program is $377.3 million (up $2 million or 0.52% from the prior year).
- In-Force Premiums: As of March 31, 2019, premiums were $1.28 billion (up 12% from the prior year).
- Cost-to-Premium Ratio: Reinsurance cost represents 29.5% of in-force premiums, down from 32.9% in the prior year.
- Retention Levels: First event group pre-tax retention decreased to $57 million (from $60 million); two-event group retention decreased to $77.2 million (from $85 million).
- Multi-Year Limit: Increased by $87.5 million to $350 million, supported by a new $100 million Armor Re II CAT Bond.
- Quota Share Agreement: Renewed with an increased cession rate of 22.5% covering attritional losses and catastrophes.
Material Changes Versus Prior Period
- Coverage Expansion: Total limits increased significantly while costs remained nearly flat, improving the cost efficiency of the reinsurance program.
- Reduced Retention: The company lowered its per-occurrence and aggregate retention levels, reducing exposure relative to GAAP equity (first event retention dropped from 11.2% to 10.6% of equity).
- Program Scope: The quota share agreement was expanded to include United Property and Casualty Insurance Company and Family Security Insurance Company.
- Florida Coverage: Elected 90% coverage for the Florida Hurricane Catastrophe Fund (FHCF) reimbursement contracts, providing approximately $1.5 billion in Florida-only coverage.
Outlook, Risks, and Management Commentary
Management highlights that the new program provides sufficient coverage for approximately a 1-in-400 year event and includes cascading coverage for multiple events in a single season. Over 90% of the reinsurance limit is backed by reinsurers with an A+ A.M. Best rating or is fully collateralized.
Risks and Contingencies: The filing contains forward-looking statements regarding attachment points, coverage, and costs. Actual outcomes may differ materially based on reinsurers' capacity to pay claims and specific adjustment provisions within the agreements.
Key Facts for Investor Verification
- Verify the financial strength and collateralization status of the reinsurers providing the $4 billion limit.
- Confirm the impact of the reduced retention levels on the company's net exposure to catastrophic events.
- Monitor the performance of the new $100 million Armor Re II CAT Bond included in the multi-year limit.
- Assess the sustainability of the 29.5% reinsurance cost-to-premium ratio in future renewal cycles.