Business Context and Reporting Period
This Form 8-K was filed by United Insurance Holdings Corp. (also referred to as UPC Insurance) on December 13, 2016. The report details the execution of new reinsurance agreements effective December 1, 2016, and January 1, 2017, designed to provide broad risk transfer protection and reduce financial volatility for the company's insurance subsidiaries.
Key Financial Metrics and Agreements
The filing does not provide specific revenue, profit, cash flow, or debt figures. Instead, it outlines the structural terms of two new reinsurance programs:
- Quota Share Agreement: Effective December 1, 2016, with a cession rate of 20% (15% for single-year and 5% over a two-year period). It covers all subject business including catastrophe perils (hurricanes, earthquakes), other-catastrophe perils, and attritional losses.
- Aggregate Excess of Loss Agreement: Effective January 1, 2017, covering other-catastrophe perils. The company retains 100% of losses between $1,000,000 and $15,000,000 up to an aggregate retention of $30,000,000. Reinsurers cover losses exceeding $30,000,000 up to an annual aggregate limit of $30,000,000.
- Coverage Scope: The quota share applies to United Property and Casualty Insurance Company. The aggregate excess of loss applies to United Property and Casualty Insurance Company, Interboro Insurance Company, and Family Security Insurance Company.
Material Changes Versus Prior Period
The filing indicates a material change in the company's risk management strategy through the implementation of these new programs. The aggregate excess of loss program was placed at 85% rather than 100% due to the overlapping participation of the quota share agreement reinsurers in paying other-catastrophe losses after the $30,000,000 retention. These agreements replace or supplement prior arrangements to provide ground-up protection for catastrophe perils and coverage for attritional losses subject to a loss ratio cap.
Guidance, Outlook, and Risks
Management states that these programs are designed to work in conjunction with existing catastrophe excess of loss programs to lessen financial volatility. 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 include the potential for actual changes to differ materially from estimates depending on reinsurers' capacity to pay claims and related adjustment provisions.
Important Facts for Investor Verification
- Verify the specific impact of the 20% cession rate on the company's net written premiums and profitability.
- Confirm the financial stability and capacity of the private reinsurers named in the agreements.
- Review the attached press release (Exhibit 99.1) for detailed cost implications of the new programs.
- Monitor future filings for actual loss experience against the $30,000,000 retention and aggregate limits.