Business Context and Reporting Period
This Form 8-K filing by United Insurance Holdings Corp. (UIHC), dated June 1, 2021, details the renewal of catastrophe reinsurance programs effective June 1, 2021. The filing covers UIHC's insurance subsidiaries, including American Coastal Insurance Company, Family Security Insurance Company, Inc., Interboro Insurance Company, Journey Insurance Company, and United Property & Casualty Insurance Company.
Key Financial Metrics and Reinsurance Structure
- Total Reinsurance Cost: $411.1 million for the 2021/22 catastrophe excess of loss programs.
- Cost Ratio: Reinsurance cost represents 32.9% of the March 31, 2021, in-force premium.
- Core CAT Program Limit: $2.931 billion multi-event cascading limit (covering American Coastal, Family Security, and United Property & Casualty).
- Group Retention (First Event): $21.3 million pre-tax.
- Group Retention (Second Event): $18.7 million pre-tax.
- Quota Share Cession: Total cession rate of 23% for the 2021 hurricane season (15% renewed + 8% existing).
Material Changes Versus Prior Period
- Core CAT Limit Reduction: The multi-event cascading limit decreased by $326 million (10%) from $3.257 billion in 2020/21 to $2.931 billion in 2021/22.
- Retention Reductions:
- First event retention dropped by $31.5 million (67.8%) to $15.0 million for the Core CAT Program.
- Group pre-tax retention for the first event decreased by $48.0 million (69.3%) to $21.3 million.
- Group pre-tax retention for the second event decreased by $9.4 million (33.5%) to $18.7 million.
Interboro Insurance Increase: Stand-alone limit per occurrence increased by $155 million (272%) to $212 million; aggregate limit increased by $195 million (247%) to $274 million.
- Journey Insurance Increase: Multi-event cascading limit increased by $109.7 million (343.9%) to $141.6 million.
- Cost Increase: Total reinsurance spend increased by $7.1 million (1.76%) despite lower limits in the core program, driven by significantly lower retention levels.
- Geographic Exclusion: The Core CAT Program excludes business written in Connecticut, Massachusetts, New Jersey, New York, and Rhode Island, which were covered in the prior year.
Outlook, Risks, and Management Commentary
Management highlights that the new program includes enhanced aggregate coverage features designed to limit the accumulation of hurricane and earthquake retained losses. Specifically, if the 2020 hurricane season were to repeat, the program would limit UIHC's net retained hurricane losses to $31.0 million. The program is structured to provide sufficient coverage for a 1-in-350 year event and cascading coverage for multiple events in a single season.
Risks and Contingencies: The filing contains forward-looking statements regarding reinsurance attachment points, coverage, and costs. Actual outcomes may differ materially based on reinsurers' capacity to pay claims and adjustment provisions within private reinsurance agreements.
Investor Verification Checklist
- Verify the impact of the 10% reduction in the Core CAT limit on the company's risk exposure, particularly given the exclusion of five specific states.
- Confirm the financial impact of the 1.76% increase in reinsurance spend relative to the significant reduction in retained risk.
- Review the specific terms of the 23% quota share cession and its effect on net premium retention.
- Assess the sufficiency of the new $21.3 million first-event group retention against potential loss scenarios.
- Monitor the capacity and financial stability of the private reinsurers mentioned in the forward-looking risk disclosures.