HCI secures larger reinsurance limit at renewals despite increasing rates

HCI Group, Inc., a Florida-headquartered property and casualty insurer, grew the size of its catastrophe reinsurance cover by approximately 31% at the mid-year 2020 renewals, securing a total limit of $1.93 billion on a first and second event basis.

HCI’s two insurance subsidiaries, Homeowners Choice Property & Casualty Insurance Company, Inc. and TypTap Insurance Company, implement a comprehensive reinsurance program to mitigate risks from hurricanes, floods, and other catastrophe events.

The firm’s 2020-20201 reinsurance programme provides coverage of up to $1.4 billion for catastrophic losses in a single event, excluding flood losses, which, according to models provided by the Florida Office of Insurance Regulations, is sufficient to cover the probable maximum loss from a 1 in 320-year storm.

The total coverage for all occurrences is $1.93 billion, says HCI. In comparison, the company only secured $1.477 billion of catastrophe reinsurance limit in 2019, excluding flood losses, sufficient to cover HCI’s probable maximum loss resulting from a 1 in 282-year storm.

The larger programme has been secured to reflect the recent premium growth at both Homeowners Choice Property & Casualty and TypTap Insurance.

HCI says that “despite increasing reinsurance rates, management determined a level of coverage larger than in previous years was prudent to protect the overall HCI business enterprise, the policyholders and shareholders.”

Under the new, larger programme, retention for the two insurance subsidiaries, excluding flood coverage, is approximately $16 million in the first event and $16 million in the second event.

In general, says HCI, the private reinsurance component of its renewals cover hurricanes, tropical storms, tornadoes and other large events, while catastrophic flood protection is provided under a separate contract.

In addition, the firm’s agreement with the Florida Hurricane Catastrophe Fund (FHCF), which this year is estimated to cover 90% of $890.6 million of first event loss in excess of $349.4 million, only covers storms designated as hurricanes by the National Hurricane Centre.

Furthermore, where HCI feels that rates are high relative to the risk, it selectively retains risk by acquiring reinsurance from Claddaugh Casualty Insurance, its Bermuda-based reinsurance subsidiary.

Expanding on this, HCI explains that, excluding flood coverage, Claddaugh provides to the two insurance subsidiaries approximately $24.6 million of coverage in a first event and $13.8 million of coverage in a second event, in exchange for premiums of around $9.7 million.

All in all, the company says that premiums for the private reinsurance segment of the programme are estimated to be $122.8 million; the cost of flood coverage is approximately $5.9 million; and the FHCF component comes at a cost of $56.2 million.

As a result of the above, HCI expects to recognise net reinsurance premiums ceded of $175 million, assuming no losses occur during that period.