HCI grows catastrophe reinsurance limit 31% to $1.93bn

HCI Group, Inc. has increased the size of its catastrophe reinsurance coverage significantly at the mid-year 2020 renewals, growing its coverage by around 31% to $1.93 billion of limit on a first and second event basis.

HCI is a Florida headquartered property and casualty insurer and parent to Homeowners Choice Property & Casualty Insurance Company, Inc. and digital insurer TypTap.

Last year, HCI only purchased sufficient catastrophe reinsurance to cover it up to $1.477 billion, excluding flood losses.

But growth of its primary Homeowners Choice and TypTap franchises in the last year means more protection is now required and so the program has increased in size significantly.

The reinsurance panel features stalwarts of the industry including Sompo International, Swiss Re, AXIS Capital, Chubb Tempest Re, MS Amlin, as well as other Lloyd’s syndicates, Berkshire Hathaway owned National Liability & Fire Insurance Company, and HCI’s own Bermuda-based reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd.

Coverage from the reinsurance is for hurricanes, tropical storms, tornados, and other large catastrophe events, while flood coverage is provided under separate contracts that incept at July 1st. In addition, HCI has Florida Hurricane Catastrophe Fund coverage for hurricanes as well.

Despite increases in reinsurance rates, the growth of its two franchises meant that HCI has had to significantly expand its catastrophe reinsurance program this year.

With up to $1.4 billion of coverage now available for a single loss event, some 55% more than 2019’s first event cover of $901 million, excluding flood, that’s sufficient to cover HCI’s probable maximum loss from a 1 in 320-year storm based on projected exposure at September 30th 2020.

The total catastrophe reinsurance coverage for all occurrences adds up to $1.93 billion across the tower, up from the $1.477 billion purchased in 2019.

Excluding flood, there is a retention of up to $16 million for the first event and $16 million for the second event, HCI said.

HCI went on to describe the cost, saying that ceded reinsurance premiums for the 2020-2021 contract year are expected to be around $175 million, up 41% from the $124 million forecast in the prior year.

The private reinsurance premiums are estimated to be $122.8 million, plus $5.9 million for flood coverage. While the Florida Hurricane Catastrophe Fund coverage is estimated to cover 90% of $890.6 million of first event loss in excess of $349.4 million, at cost of $56.2 million.

HCI has used its Claddaugh self-reinsurance entity at little more for the coming year, likely to save on costs, with the vehicle set to provide roughly $24.6 million of reinsurance coverage for a first event and $13.8 million of coverage for a second event, at a premium of approximately $9.7 million.

As with most Florida renewals, we assume an element of ILS market and collateralised reinsurance participation in HCI Group’s 2020 catastrophe reinsurance program.

It’s clear the cost, in terms of estimated premiums expected to be ceded, has risen more quickly than the growth of the program as well, implying higher renewal rates, as has been experienced more broadly across the market.