Assurant Closes Reinsurance Deal – Analyst Blog

In order to shield itself from losses in 2010, which looms ahead as an above-average hurricane season, Assurant Specialty yesterday announced its comprehensive catastrophe (CAT) reinsurance program. A reinsurance agreement is kind of a reimbursement program for an insurance company like Assurant Specialty, a unit of Assurant Inc. (AIZ).

 

The CAT reinsurance program has been designed in layers with purchases made under three different parts:

 

The first part is the participation in the Florida Hurricane Catastrophe Fund (FHCF) program, which is mandatory for insurers writing property insurance in the state of Florida. The FHCF provides reinsurance to the approximately 186 residential property insurers doing business in the state. It reimburses insurers after their hurricane-related residential property insurance losses reach their retention limit. Assurant has chosen a coverage of 90% of losses up to $315 million in excess of a $119 million retention, as the FHCF is the most cost-effective reinsurance available.

 

The second part is on a “per occurrence” basis, which will provide protection of up to $1.13 billion in excess of $155 million retention. This coverage will be available in 6 parts or layers, with a co-participation of 20% and 67.9% in the fifth and sixth layers, respectively, by Assurant.

 

Any amount received from the FHCF will be deducted from the amount recoverable from the reinsurer. The “per occurrence” clause frees the agreement from being claims-based; that is, the company will be able to recover the amount if the catastrophe occurs, irrespective of when it places the claim.

 

Of the total per-occurrence reinsurance, $300 million was provided by Ibis Re Ltd. To fund its obligations to Assurant, Ibis Re had issued catastrophe bonds in May 2009 and April 2010.

 

To further protect itself against losses, given the fact that Florida has become a hurricane-prone state, Assurant is also providing for subsequent storm coverage. By this, the company would be able to recover up to $55 million for the second and third occurrences, even with retentions as low as $100 million.

 

The reinsurance program will reduce the net premiums earned by approximately $188 million in 2010. Assurant’s CAT reinsurance agreements are part of the company’s catastrophe management strategy, which is intended to provide the shareholders an acceptable return on the risks assumed in its property business, and to reduce variability of earnings while providing protection to the customers.