Business Context and Reporting Period
This Form 8-K filing by United Insurance Holdings Corp. (UIHC), dated June 1, 2020, reports the renewal of catastrophe reinsurance programs effective June 1, 2020. The filing covers the 2020/21 reinsurance year for UIHC's insurance subsidiaries, including American Coastal Insurance Company, Family Security Insurance Company, Interboro Insurance Company, Journey Insurance Company, United Property & Casualty Insurance Company, and Blueline Cayman Holdings.
Key Financial Metrics and Reinsurance Structure
- Core Catastrophe Limit: Increased to $3.257 billion (up $101 million or 3.2% from the prior year).
- Group Retention: First event group pre-tax retention is $69.3 million, representing 13.8% of year-end 2019 GAAP equity (an increase of $12.2 million from the prior year).
- Reinsurance Cost: Total cost for 2020/21 catastrophe excess of loss programs is $404.0 million (up $26.7 million or 7.1%).
- Cost-to-Premium Ratio: Reinsurance cost represents 29.2% of March 31, 2020, in-force premiums, down from 29.5% in the prior year.
- Quota Share: Renewed at a 22.5% cession rate for United Property & Casualty and Family Security Insurance.
- UPC Re Assumption: The wholly-owned subsidiary UPC Re assumed $12.5 million of limit on the lowest layer, receiving $7.3 million in premium with a modeled expected return exceeding 40%.
Material Changes Versus Prior Period
- Increased Coverage Limits: The core multi-event cascading limit increased by 3.2%. Journey Insurance Company's limit increased by 22% to $31.9 million. The multi-year catastrophe excess of loss limit increased by 15.7% to $405 million.
- Higher Retention: The group pre-tax retention increased by $12.2 million, driven partly by the $12.5 million co-participation assumed by UPC Re.
- Improved Cost Efficiency: While absolute reinsurance costs rose, the cost as a percentage of in-force premiums decreased from 29.5% to 29.2%, indicating reinsurance spend grew at a slower rate than premium growth.
- Specific Subsidiary Programs: Interboro Insurance purchased a new stand-alone program ($57 million per occurrence), and Blueline Cayman Holdings purchased a stand-alone program ($111 million per occurrence).
Outlook, Risks, and Management Commentary
Management highlights that the renewed programs provide sufficient coverage for severe scenarios, including a 1-in-350 year event for the core program and specific multi-event sequences (e.g., a 1-in-100 year event followed by a 1-in-50 year event). The filing includes forward-looking statements regarding attachment points, total coverage, and costs, which are subject to the Private Securities Litigation Reform Act of 1995. Key risks identified include the capacity of reinsurers to pay claims and the impact of adjustment provisions in private reinsurance agreements, which could cause actual results to differ materially from estimates.
Investor Verification Checklist
- Verify the impact of the increased $69.3 million retention on the company's capital adequacy and solvency ratios.
- Confirm the actual premium revenue growth rate to validate the reported improvement in the cost-to-premium ratio.
- Review the specific terms of the 90% coverage election for the Florida Hurricane Catastrophe Fund (FHCF) reimbursement contracts.
- Assess the financial stability of the private reinsurers providing the $3.257 billion core limit.
- Monitor the actual performance of the UPC Re subsidiary against the modeled expected return of greater than 40%.