Month: May 2024

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As the June 1st Florida reinsurance renewals come to their close, rating agency AM Best has said that it believes the pendulum remains “slanted toward reinsurers,” but also notes that some ground has been given, in terms of a less challenging renewals and moderated rate environment.

florida-map-pendulum-reinsuranceHowden Re reported yesterday that, by its measure, property catastrophe reinsurance rates averaged -5% down at the Florida focused June renewals.

Rating agency AM Best notes the “considerably high level of dependency” that Florida’s insurance industry has on global reinsurance capital in a new report.

Because of this dependency, Floridian carriers are exposed to fluctuations in reinsurance prices and terms, as well as the availability of coverage at different layers in their towers, all of which has been a significant challenge for insurers over the last couple of years.

Florida-focused personal property insurers reinsurance dependency “skews higher than the broader overall property segment,” AM Best explained.

Demonstrating how much higher their reinsurance dependency is, AM Best says that active Florida specialists, in the aggregate, have ceded reinsurance leverage of 514.7%, compared with its personal property composite average of 59.1%.

“While some of these primary insurers use reinsurance arrangements to generate income strategically through ceding commissions, a considerably high level of dependency can indicate greater sensitivity to changes in reinsurance pricing and availability,” the rating agency explained.

While the dependency remains very high, AM Best noted that conditions are better at the June reinsurance renewals this year, but still the reinsurance community remains in the driving seat in Florida.

“As we approach mid-year renewals, the pendulum remains slanted toward the reinsurers, but as the Florida specialist companies find balance, particularly with risk accumulations, it may provide better footing for negotiation for primary carrier,” AM Best explained.

The rating agency highlighted signals that Florida’s insurance market is improving, such as the filing of some rate reduction requests, which we reported on recently here.

Reinsurers are optimistic that the effects of recent legislative reforms will benefit them, but for now AM Best believes they are “in a wait-and-see stage as reinsurers appear to be keeping capacity steady for mid-year renewals.”

AM Best says it is “cautiously optimistic” on the Florida property insurance market.

“While still too early to declare a win in the Florida personal property market, the signals look promising. The legislative reforms and declining Citizens’ policies in force mark a step in the right direction. Time will tell if favorable market results will continue and effectively managing hurricane risk is an ongoing challenge,” the rating agency said.

Adding, “AM Best is cautiously optimistic about the overall state of the market and mid-year reinsurance renewals are expected to reflect some level of optimism in the overall marketplace.

“While there are signs of stabilization, sustaining these improving market conditions will be critical.”

Read all of our news and analysis on the Florida insurance and reinsurance market.

Florida pendulum still with the reinsurers, but cautious optimism returns: AM Best was published by: www.Artemis.bm
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With pricing moderated slightly at the mid-year reinsurance renewals, analysts at Fitch Ratings note that this shouldn’t be construed as softening, saying that terms and conditions are holding firm and discipline is expected to persist.

mid-year-reinsurance-renewalFitch Ratings said that the June and July reinsurance renewals in 2024 are in seeing rate movements that are in contrast to the hardening seen a year earlier.

“At the June/July midyear 2024 reinsurance renewals, pricing is moderating, with risk-adjusted rates generally flat to down slightly. This is in contrast to the 2023 renewals, when Florida property experienced 30%-40% rate rises for catastrophe loss hit business, reflecting the impact of Hurricane Ian in 2022,” the rating agency said.

But added that, “Terms and conditions are holding firm, with retentions steady and not returning to levels that provide earnings protection to cedents.”

As a result, the reinsurance market seems to be meeting the needs of cedents in Florida and beyond at this mid-year renewal season, albeit still at pricing and attachment levels higher than many would have liked to see.

But overall capital strength in the re/insurance industry remains high, Fitch says, which provides the sector “an ability to absorb near-term large insured losses from an individual hurricane or other catastrophic event.”

But the rating agency also noted that, pertinent for the coming hurricane season, “A confluence of large events in a short period may lead to capital reductions and rating pressure.”

Not every carrier is as well-capitalised though and Fitch also highlights the fact, “Florida specialty insurers’ capital tends to be weaker than that of their larger and national peers. Weakened capital positions at individual Florida specialists could be challenged in the event of a significant catastrophe year.”

Still, the global reinsurance and insurance-linked securities (ILS) markets support a significant portion of Florida exposures, which helps these carriers in the face of elevated losses.

Some loss affected accounts experienced rate increases in Florida at the June reinsurance renewals, signalling that the reinsurance and ILS markets still require an adequate return to deploy capacity there.

Capacity support is in fact growing, with Fitch explaining that, “Reinsurance and retrocession capacity to the Florida market are increasing from both traditional and ILS sources, including record issuances of catastrophe bonds, where spreads are at double-digits. This reflects favorable expected returns on property catastrophe risk following several rounds of price increases.”

The rating agency added that, “Even with the added capacity, Fitch expects the reinsurance market to maintain its discipline and support rate adequacy as catastrophe risk remains high with climate change concerns.”

Reinsurance demand proved to be particularly strong in Florida at the mid-year renewals, especially for the higher layers where catastrophe bonds have provided significant support.

Demand has risen thanks to growth at carriers, with depopulation from Citizens one source, as well as still rising exposure levels and the removal of some state-backed reinsurance layers in 2024.

Another factor is the improving Florida market environment, with recent legislative reforms seemingly having a positive effect.

Fitch said, “As a result, demand for reinsurance coverage increased at the June/July 2024 renewals, as Florida property specialists gain confidence in their ability to profitably offer property insurance.

“However, the financial benefit of the reforms needs to be proven out over time before it could pressure meaningful declines in reinsurance pricing.”

Read all of our reinsurance renewal coverage here.

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Universal Insurance Holdings, Inc. has purchased first-event catastrophe reinsurance coverage of up to $2.4 billion, down from the previous year’s just over $2.8 billion, citing no material changes to reinsurance partners and ILS manager Nephila Capital again named as a significant market for the company.

universal-insurance-holdings-logoFor its subsidiary firms Universal Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APCIC), Universal has set the top of its combined reinsurance tower for a single All States (including Florida) event at $2.404 billion for the 2024 to 2025 year.

A year ago, that was set at $2.831 billion, which was also down from over $3.1 billion of reinsurance needed in the previous year.

While Universal’s business has fluctuated in size somewhat, there are other considerations like the changes to state-backed reinsurance layers such as Florida’s RAP and FORA to consider in the mix, all of which drove resulted in Universal’s “demand for private market capacity increasing significantly,” the insurer explained.

UPCIC’s in force wind-covered policy count in Florida declined by 25,266 up to the end of March, which drove a year over year reduction to the top end of its first event reinsurance tower, the company said.

Notably for our readers, Universal opted to renew an expiring $150 million of catastrophe bond coverage (the Cosaint deal) in the traditional reinsurance market this year, marking a departure in strategy versus many other Floridians that have bought more cat bond cover in 2024.

Universal noted that its biggest reinsurance providers in 2024 were Nephila Capital, Markel, RenaissanceRe, Munich Re, Chubb Tempest Re, Ariel Re, Everest Re and Lloyd’s of London syndicates, so it’s clear ILS capital remains a major component of the tower overall.

“We are pleased to announce the completion of the 2024-2025 reinsurance program for both of our insurance companies,” explained Matthew J. Palmieri, Chief Risk Officer. “Reinsurance serves as the fulcrum of our insurance entities’ ability to absorb multiple catastrophic events in a given year, protecting policyholders and allowing operations to continue smoothly. For this renewal, we approached the market with considerably more private market catastrophe capacity demand and the Company executed efficiently with our long-standing reinsurance partners ahead of the upcoming 2024 Atlantic Hurricane Season. We also added new multi-year coverage extending through the 2025-2026 reinsurance period in the process.”

Universal also noted that $1.023 billion of its reinsurance tower will automatically reinstate to provide some multi-event protection, which is up by $177 million in aggregate limit that is available for subsequent events compared to a year earlier.

$240 million of catastrophe reinsurance provides multi-year coverage into the 2025-2026 treaty year, $165 million below the Florida Hurricane Catastrophe Fund and $75 million above it.

The combined first event retention for a loss in all states including Florida is unchanged from the prior year at $45 million.

Universal said that the total cost of its 2024-2025 catastrophe reinsurance program for UPCIC and APPCIC is projected to be around 33% of estimated direct premiums earned for the 12-month treaty period, up from an estimated 31.8% a year earlier.

That likely reflects the increased private market reinsurance limit needed in 2024, but the participation of third-party capital across its reinsurance panel will have helped in ensuring capital efficiency at this renewal.

Universal had already secured this renewal back before May began, as the company got into the market early again this year.

Read all of our reinsurance renewals news and analysis.

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HCI Group Inc. has secured $2.7 billion in aggregate reinsurance limit for its main P&C insurance underwriting subsidiary Homeowners Choice Property & Casualty Insurance Company, Inc. subsidiary and for its digital insurtech company TypTap at the renewals.

hci-group-logoThe company has extended coverage across its business and is now also considering the use of what it terms “additional risk transfer instruments” for the coming wind season.

It’s a sign of the growth HCI has been experiencing, having secured policies from the Florida Citizens depopulation program, as well as growing its book organically as well.

HCI’s catastrophe reinsurance programs for the 2024-2025 treaty year run from June 1st 2024 through May 31st 2025 and now comprise total aggregate limit of $2.7 billion, the company said today.

Paresh Patel, HCI’s chairman and chief executive officer commented, “We appreciate the broad support we received from our valued reinsurance partners.

“HCI continues to maintain a conservative approach to its reinsurance placement. This includes securing additional limit this year to support the significant growth we have achieved over the past few months.”

Two reinsurance towers have been renewed for the HCI insurance subsidiaries, Homeowners Choice and TypTap, with Tower 1 covering all Homeowners Choice policies issued in Florida, while Tower 2 shared between TypTap and Homeowners Choice and covering all TypTap policies including Florida, as well as Homeowners Choice policies issued outside of Florida.

Similar to the prior year, HCI has a retention of $14 million for Reinsurance Tower 1 and $9 million for Reinsurance Tower 2.

HCI Group says it anticipates incurring net consolidated reinsurance premiums ceded to third parties, excluding its own internal reinsurer Claddaugh, of approximately $333.6 million this year, assuming no losses occur.

That’s up from $266.6 million in net consolidated premiums incurred from the previous year’s reinsurance towers.

Among the private reinsurers backing HCI this year are reported to be Arch Reinsurance Ltd., Chubb Tempest Reinsurance Ltd., Endurance Specialty Insurance Ltd., Everest Reinsurance Company, Hannover Ruck SE, Markel Bermuda Limited, National Liability & Fire Insurance Company, Transatlantic Reinsurance Company, various Lloyd’s syndicates, and its own Bermuda-based reinsurance subsidiary, Claddaugh Casualty Insurance Company Ltd.

The private reinsurance that has been renewed covers, in general, hurricanes, tropical storms, tornados, hailstorms, wildfires and other large events, HCI said.

Additional reinsurance, outside of these towers, was secured for Condo Owners Reciprocal Exchange (CORE), an HCI-sponsored reciprocal insurer.

Tower 1, for HCI in Florida, will provide $1.12 billion of reinsurance for catastrophic losses from a single event in the state, with total coverage for all occurrences of $1.66 billion and a retention of $14 million for the first and second events.

Tower 2, for HCI outside Florida and TypTap everywhere, provides reinsurance for $723.3 million of catastrophic losses from a single event in Florida, and up to $410.0 million from a single event outside of Florida, with total coverage for all occurrences of $1.11 billion after a retention of $9.0 million for the first and second event.

The larger towers for 2024 reflect HCI Group’s growth and its assumption of policies from Citizens in Florida, all of which is making it a reinsurance buyer of growing stature in the market.

It’s interesting to hear it continues to consider additional risk transfer and it would be interesting to see whether catastrophe bonds feature in HCI’s reinsurance arrangements in future, to help support its growing need for protection.

Read all of our reinsurance renewal coverage here.

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According to Howden Re, the reinsurance broking arm of Howden, property catastrophe reinsurance rates-on-line fell by 5% at the June 1st renewals, with pressure greatest at the upper-layers of towers.

property-catastrophe-reinsurance-rates-on-line-howdenAcross the market, Howden Re says that property catastrophe reinsurance renewal rates fell in a typical range of -7.5% to – 2.5%.

Overall, the market experienced what Howden Re terms “a moderation” at the June reinsurance renewals, driven by an abundance of capacity for higher-layer risks.

This “period of adjustment” is due in part to the rebound in dedicated reinsurance sector capital, the broker explained, which it now says exceeds 2021 levels.

Strong ILS market inflows have supported this capital resurgence, Howden Re believes, growing capacity for the top of programmes and driving risk-adjusted rate reductions in higher layers.

It’s interesting to note that this is the first decline in property cat RoL’s in Howden Re’s data set since 2017.

It’s perhaps too early to read into whether this continues and capacity build-up drives further reductions in early 2025 at the renewals.

But commentary from Howden Re, on traditional reinsurer appetite at a time of strong cat bond and ILS growth, does echo what we were hearing over a decade ago before the softening of rates through the early to mid-2010’s.

property-catastrophe-reinsurance-rates-on-line-howden

Interestingly, Howden Re notes that some cedents also secured improved terms as well, at the June renewals.

“Buyers and sellers engaged early in the year, with cedents targeting better terms and conditions to address previous increases in limits and attachments, as well as narrower wordings. Reinsurers exhibited a proactive stance by completing many programmes early, enabling the deployment of increased retrocession capacity as the renewal drew near. This strategic approach enabled some buyers to achieve more favourable terms in what remains a cautious market,” the broker said.

Wade Gulbransen, Howden Re Head of North America, commented, “It is crucial that our clients secure optimal coverage in this rapidly evolving landscape. This means not only finding capacity, but also ensuring it aligns with their risk profiles and financial objectives.

“Our focus remains on providing innovative thinking alongside dynamic placement strategies to meet these challenges head-on.”

In insurance-linked securities (ILS), Howden Re highlights “a notable increase in activity and competition” with increased supply for the higher-layers of reinsurance towers, helped by a growing catastrophe bond market on record-pace, but also by more capacity for retrocession as well.

“Collateralised retrocession capacity has likewise expanded, with capital providers’ assets under management growing significantly,” the broker added.

Further stating that, “The increased level of ILS interest reflects a broader market trend towards diversified alternative risk transfer mechanisms, offering reinsurers and cedents more options to manage their exposures.”

Perhaps a little concerning though, for the future rate discipline of the market, Howden Re also says that, “Some reinsurers have begun to re-focus on property risks, aiming to grow in peak zones including southwest wind.”

Which, for those in the market for more than a decade, will likely sound reminiscent of the early to mid-2010’s when reinsurers grew significantly into US catastrophe risks, at a time of ILS market expansion and growth, and the market became firmly-set into a softening phase.

Howden Re also notes that there could be some short-term rate pressures from the hurricane season and its forecasts for a very active year, rising loss estimates from hurricane Ian, plus the persistent challenges at lower-layers of reinsurance towers.

David Flandro, Head of Industry and Strategic Advisory at Howden Re, said, “The reinsurance market is at a critical juncture. While the recovery of dedicated capital and increased capacity signal a potential softening of rates, the forecasted active hurricane season and other market pressures could counteract these trends. Strategic adaptability and expert guidance are essential in navigating these dynamics.”

We’ve yet to hear of any adjustments to reinsurer appetite after the recent hurricane model update, despite it clearly moving pricing in catastrophe bonds. So that could be an additional interesting dynamic to watch out for, especially if traditional reinsurers are loading up on US wind risk in 2024.

Read all of our reinsurance renewals coverage here.

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Take up rates for parametric risk transfer, insurance and reinsurance solutions have grown “dramatically” over the last year, according to broker Aon.

parametric-insurance-risk-transferIn particular, Aon highlights a rapid shift in both insurance market and corporate risk transfer buyers perceptions of risk transfer alternatives, which is helping to drive more rapid uptake of parametric solutions.

Aon notes a “continued shift” in perceptions of alternative risk solutions, including parametrics, through the first-quarter of this year.

“Historically, alternative risk solutions were seen primarily as a way to fill gaps left by traditional insurance. Now, with the explosive growth of data, and the availability of innovative analytic solutions, alternative risk solutions have become an integral component of effective risk transfer and financing strategies,” the broker explained.

Adding that, ” Indeed, corporate risk strategies now commonly include traditional insurance, reinsurance, and alternative solutions, informed and enabled by myriad data-driven insights.”

Appetite for alternative solutions such as parametric insurance and risk transfer “continued to strengthen” in 2024 so far, Aon reports.

In particular, parametric solutions are gaining prevalence as “insureds sought to support their retention strategies or close the protection gap.”

Property damage and business interruption portfolios are an area of some focus for buyers looking to narrow gaps in their coverage.

In Latin America, the uptake of parametric solutions has also been on the rise.

Aon’s Andrea Aguilar, Head of Strategy and Broking Commercial Risk Solutions Latin America, commented, “The frequency of natural catastrophe events has increased across the region, fueling ongoing challenging property market conditions. This environment calls for creative and efficient solutions, particularly when insurance programs exceed automatic treaty local market capacity and require facultative reinsurance.

“There has never been a greater need for alternative risk transfer solutions, including parametric solutions and captives.”

Anywhere that a traditional insurance or risk transfer solution cannot satisfy the full objectives of an insurance or reinsurance program, Aon advises parametrics are an alternative to explore.

In North America as well, momentum has accelerated for alternative solutions such as parametric insurance and risk transfer, “as the risk environment continued to grow more complex, data-enabled, and interconnected, as natural catastrophe-exposed risks continued to dominate underwriting agendas, and as C-suite perceptions shifted from traditional views of the insurance mechanism toward a more strategic view of insurance as a form of ‘rented capital’ to be included in a firms’ capital allocation strategies,” Aon explains.

Data, analytics and modelling can assist clients in understanding whether parametric triggers are the right solution for their insurance and reinsurance needs.

Aon notes that these tools and the abundance of data available today can help to “assess risk and inform decisions around risk retention thresholds, attachment points, indemnity periods, and policy limits, sub-limits, and terms and conditions,” which is critical for making decisions about the form of risk transfer to use and whether a parametric solution is appropriate.

As a result, “Take up rates of parametric solutions have grown dramatically over the past 12 months, especially for distressed perils and locations,” Aon said.

Adding that, “The benefits of parametric solutions include cashflow / liquidity stemming from quick payouts, broader coverage / fewer exclusions than traditional property insurance, and flexibility as to how loss proceeds are utilized.”

A notable example of this came to light recently, as we reported on the Government of Puerto Rico’s venturing into the catastrophe bond market for parametric disaster insurance protection.

Parametric solution take up rates grow “dramatically” in last year: Aon was published by: www.Artemis.bm
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Descartes Underwriting, the parametric insurance and data-driven risk transfer specialist managing general agency (MGA), has hired former OTT Risk employee Matthew James as its new Commercial Director, UK & Ireland.

matthew-james-descartes-underwritingJames joins Descartes after ten years at broker WTW and then a stint as Head of Business Development in London for the now defunct parametric MGA OTT Risk.

At Descartes, he will be tasked with leading business development activities in London for the firms parametric insurance solutions.

In his time at broker WTW, James worked on structuring novel parametric solutions designed to manage the weather-risk exposures of clients across a range of industry sectors.

He then joined parametric MGA startup OTT Risk, again in London, but that company shuttered its operations in the first-quarter of this year.

At Descartes, James is taking over from Paul Jones, who is leaving the company after a near three year stint, to pursue other opportunities.

“We’re really excited to have attracted someone of Matthew’s experience and ingenuity as the new head of our London office,” explained Descartes co-founder and Chief Executive Tanguy Touffut. “His experience working with clients as a broker, assessing their climate and insurance challenges then crafting parametric solutions, will bring a new perspective to our work. Our restated strategy remains to deliver strong growth in high-potential markets, and Descartes will continue to deliver, in London and around the world.

“I’d like to thank Paul for his contribution to our development over the years. His work, particularly in educating new brokers to the benefits of parametric and developing and distributing coverages for peak peril exposures, has been invaluable. I wish him every good fortune.”

“I am super-pleased to be joining Descartes,” Matthew James added. “They are renowned as a leader in parametric insurance and I’ve followed their growth closely since their birth in 2018. The team of data scientists in Paris and London boasts some serious brains. Their depth of expertise and understanding of climate change’s impact on business is hard to beat. I look forward to working with this team at the cutting edge of parametric insurance, and alongside Ola Jacob and the rest of Descartes’ London team.”

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Descartes Underwriting, the parametric insurance and data-driven risk transfer specialist managing general agency (MGA), has hired former OTT Risk employee Matthew James as its new Commercial Director, UK & Ireland.

matthew-james-descartes-underwritingJames joins Descartes after ten years at broker WTW and then a stint as Head of Business Development in London for the now defunct parametric MGA OTT Risk.

At Descartes, he will be tasked with leading business development activities in London for the firms parametric insurance solutions.

In his time at broker WTW, James worked on structuring novel parametric solutions designed to manage the weather-risk exposures of clients across a range of industry sectors.

He then joined parametric MGA startup OTT Risk, again in London, but that company shuttered its operations in the first-quarter of this year.

At Descartes, James is taking over from Paul Jones, who is leaving the company after a near three year stint, to pursue other opportunities.

“We’re really excited to have attracted someone of Matthew’s experience and ingenuity as the new head of our London office,” explained Descartes co-founder and Chief Executive Tanguy Touffut. “His experience working with clients as a broker, assessing their climate and insurance challenges then crafting parametric solutions, will bring a new perspective to our work. Our restated strategy remains to deliver strong growth in high-potential markets, and Descartes will continue to deliver, in London and around the world.

“I’d like to thank Paul for his contribution to our development over the years. His work, particularly in educating new brokers to the benefits of parametric and developing and distributing coverages for peak peril exposures, has been invaluable. I wish him every good fortune.”

“I am super-pleased to be joining Descartes,” Matthew James added. “They are renowned as a leader in parametric insurance and I’ve followed their growth closely since their birth in 2018. The team of data scientists in Paris and London boasts some serious brains. Their depth of expertise and understanding of climate change’s impact on business is hard to beat. I look forward to working with this team at the cutting edge of parametric insurance, and alongside Ola Jacob and the rest of Descartes’ London team.”

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Palomar Insurance Holdings, the speciality California-headquartered insurer that offers largely catastrophe exposed property products, has completed its reinsurance renewal for 2024 and lifted the top of its tower to $3.06 billion, with its largest catastrophe bond yet contributing to the coverage growth.

mac-armstrong-palomarA year ago, Palomar had renewed its reinsurance towers to provide $2.68 billion of coverage for earthquake events, with multi-year ILS capacity from its catastrophe bonds providing $875 million of that.

In recent weeks, we’ve documented Palomar’s issuance of its largest catastrophe bond to-date, as the company secured $420 million of California-focused earthquake reinsurance from the capital markets with the Torrey Pines Re Ltd. (Series 2024-1) issuance.

Now, the company has revealed full-details of its reinsurance renewal purchases, securing a reduction in attachment for the hurricane coverage and growing the reinsurance tower significantly.

The reinsurance programs incept at June 1st and saw Palomar purchasing $400 million of incremental limit to support the growth of its earthquake underwriting franchise.

Palomar’s total reinsurance coverage now extends to $3.06 billion for earthquake events, $735 million for Hawaii hurricane events, and $117.5 million for all continental United States hurricane events.

The insurer said this provides ample capacity for its growth in, as well as coverage to a level exceeding Palomar’s 1:250-year peak zone Probable Maximum Loss.

Palomar said that its per-occurrence event retention for 2024 is now $15.5 million for hurricane losses, down from $17.5 million the previous year, and $20 million for earthquake events, which is up from last year’s $17.5 million.

The insurer noted that these retention levels “continue to be meaningfully within management’s previously stated guideposts of less than one quarter’s adjusted net income and less than 5% of the Company’s surplus on an after-tax basis.”

Palomar highlighted the new $420 million of earthquake reinsurance secured through the fifth Torrey Pines Re catastrophe bond.

You can read about all of Palomar’s catastrophe bonds in our extensive Deal Directory.

“We are very pleased with the successful June 1 placement and are very grateful for the continued support of our reinsurance and ILS partners,” Mac Armstrong, Palomar’s Chairman and Chief Executive Officer expained. “Importantly, we renewed our reinsurance program at terms and pricing that were better than our initial expectations and reduced our hurricane event retention.

“As a result, we are raising our full year 2024 adjusted net income guidance to a range of $122 million to $128 million from the previously indicated range of $113 million to $118 million.”

Now, with the larger $420 million catastrophe bond under Torrey Pines Re, that more than replaces a maturing $400 million deal from 2021, Palomar has increased its multi-year ILS capacity within its reinsurance tower from $875 million last year to $895 million in 2024.

Palomar noted that this represents “diversifying collateralized reinsurance capital”, while its overall reinsurance panel features 90 reinsurers and ILS investors, including multiple new reinsurers added in 2024.

Palomar’s reinsurance tower features prepaid reinstatements for substantially all layers, which it notes limit the pre-tax net loss to $15.5 million for hurricane events and $20 million for earthquake events, with some “modest” additional reinsurance premium due.

Palomar’s Chief Risk Officer, Jon Knutzen, commented, “We are grateful for the broad-based support we received from the reinsurance market. It is a testament to our business mix and risk profile, which has been curated with the goal of delivering more stable, predictable results. We appreciate all our incumbent and new reinsurance partners who have helped us successfully complete our June 1 placement.”

You can read all about this Torrey Pines Re Ltd. (Series 2024-1) catastrophe bond and every deal issued since 1996 in the Artemis Deal Directory.

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The government of Puerto Rico is seeking $75 million in parametric insurance protection against the financial impacts of named storms and earthquakes from the capital markets, through a new Puerto Rico Parametric Re Ltd. (Series 2024-1) catastrophe bond transaction, Artemis has learned.

Puerto Rico Parametric Re catastrophe bondThis first Puerto Rico Parametric Re catastrophe bond is particularly notable as the first cat bond to directly benefit the government of a territory of the United States.

It’s also worth highlighting that this is a very rare sovereign catastrophe bond that is being issued in the private market, to provide disaster insurance to the government of a country, with no intermediation or facilitation from any multilateral organisation, such as the World Bank.

As such, we believe this to be a very encouraging development, as this Puerto Rico Parametric Re Ltd. cat bond is a good example of how a government in a catastrophe-exposed region of the world can secure financing from the capital markets, with a payout that is contingent on a disaster occurring.

It’s also encouraging as it shows a model by which other US territories and States could secure financial support for disaster recovery, by tapping private capital markets.

That can benefit a government by, funding recovery from a disaster, as well as in providing budgetary liquidity at a time of potential stress, ultimately helping the recovery from a major catastrophe to be quicker and emergency funding to be deployed more rapidly.

Hence the use of a parametric trigger, for this first cat bond for the government of Puerto Rico, is no surprise, as it helps to deliver on the speed of settlement of any claims after a qualifying major natural catastrophe event, providing faster liquidity than a traditional insurance product might.

Puerto Rico, an island in the Caribbean that is an unincorporated territorial possession of the United States, faces hurricane risks each year and has been severely impacted by storms such as 2017’s Maria. The country also faces earthquake risks, so it makes sense for the government to be seeking parametric protection for both of these perils with its first cat bond deal.

The government of Puerto Rico has already been tapping traditional sources of insurance to help it plug disaster funding gaps, we understand, but now looks to the capital markets to augment this with a diversified source of insurance and a parametric trigger instrument to aid in faster payouts.

Helping Puerto Rico to access the capital markets for catastrophe bond coverage, Starr Indemnity & Liability Company, a subsidiary of Starr International, is acting as the reinsured party, so fronting the reinsurance protection for the government, specifically for its Department of Treasury (Departamento de Hacienda), we understand.

While Hannover Re is said to be acting as the reinsurer and will sit between Starr Indemnity, reinsuring it, while entering into a retrocessional reinsurance agreement with Puerto Rico Parametric Re Ltd. to transform the capital markets coverage, which will flow back to the government’s benefit.

Puerto Rico Parametric Re Ltd. is set to issue a single tranche of notes that will be sold to investors and the proceeds used to collateralize the retrocession agreement with Hannover Re.

Hannover Re then enters simultaneously into a reinsurance agreement with Starr Indemnity, which enters into an insurance agreement with the government of Puerto Rico.

A $75 million Series 2024-1 Class A tranche of notes are designed to ultimately provide the Puerto Rican government with an almost three-year source of disaster insurance protection, running to the end of May 2027, we are told.

The protection will be on a parametric trigger and per-occurrence basis, covering impacts of named storms and earthquakes for the country.

The parametric trigger features two boxes, a gold box that spans the entirety of Puerto Rico and a red box which is focused on San Juan and surrounding higher population and exposure density regions.

Different payout factors apply for the two boxes, with the risk of triggering highest should a hurricane or earthquake pass through or occur in the red box focused on the higher exposure region.

We’re told that hurricane risk makes up the majority of the expected loss for these notes, at more than 82%, and historical modelling shows that a repeat of 2017’s hurricane Maria would trigger the Puerto Rico Parametric Re cat bond.

There are also different payout percentages possible under the parametric trigger, dependent on the intensity of hurricane or earthquake, so the Puerto Rican government could benefit from payouts ranging from 25% of principal upwards with this cat bond, dependent on event severity, we are told.

The $75 million of Class A notes come with an initial base attachment probability of 3.07%, an initial base expected loss of 1.65% and they are being offered to cat bond investors with price guidance in a range from 8.5% to 9.5%.

As we said, it’s very encouraging to see a catastrophe bond like this that will benefit a government and is being issued in the private market.

It’s a clear demonstration of the government of Puerto Rico’s desire to narrow the protection gap that becomes evident when a major catastrophe strikes the island, as was seen with hurricane Maria.

You can read all about this Puerto Rico Parametric Re Ltd. (Series 2024-1) catastrophe bond and every more than one thousand other cat bond transactions in the Artemis Deal Directory.

Puerto Rico government seeking Parametric Re cat bond protection was published by: www.Artemis.bm
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