Heritage’s reinsurance retention rises, exhaustion drops, renewal spend increases

Florida headquartered, nationally expansive U.S. property casualty insurer, Heritage Insurance Holdings, Inc., is set to retain more risk this year as the company announces the details of its 2022-2023 reinsurance renewal.

The insurer confirmed last week that despite challenging market conditions, it managed to fully place its catastrophe excess-of-loss reinsurance program for its insurance businesses without needing to leverage the recently launched Reinsurance to Assist Policyholders (RAP) program.

Now, Heritage has provided some more details on its reinsurance renewal, revealing that it is retaining more risk, when compared with last year, with the first event consolidated loss retention in the Southeast and Hawaii increasing from $32 million for 2021 to $40 million for 2022.

Additionally, the northeast first event retention has risen from $20.7 million last year to $30 million for the 2022-2023 program.

While the retention has risen, the first event reinsurance tower exhaustion point for the Southeast has fallen by $100 million to $1.3 billion and is also below the $1.347 billion seen in the 2020-2021 program.

For the Northeast, the first event reinsurance tower exhaustion point stands at $1.2 billion for 2022, and $780 million in Hawaii with no co-participations in the syndicated program.

The 2022 renewal includes a limit of $100 million from the firm’s recently issued Citrus Re Ltd. (Series 2022-1) catastrophe bond, which is the first time Heritage has leveraged the capital markets for reinsurance protection since 2017.

This transaction provides the insurer with cover for losses from named storms across certain north-east US states, on a per-occurrence and indemnity trigger basis, for a cost of $5.1 million.

Despite Heritage retaining more risk this year and bringing down the exhaustion point for the Southeast, so in effect having less reinsurance limit in the tower, the total consolidated cost of this year’s placement was $359.5 million, accounting for 31% of March 31st, 2022, premiums-in-force.

This is higher than the previous year reinsurance cost, which totalled 28% of March 31st, 2021, premiums-in-force, or approximately $312 million.

The 2022-2023 program provides reinsurance cover for Heritage Property Casualty Insurance Company (HPCIC), Narragansett Bay Insurance Company (NBIC), and Zephyr Insurance Company (ZIC) underwriting subsidiaries.

The entire 2022-2023 catastrophe excess-of-loss reinsurance program is indemnity based, and includes Florida Hurricane Catastrophe Fund (FHCF) participation of 90%, in line with last year’s program.

As announced previously, Heritage deferred utilisation of the RAP program, which was launched following the widely discussed special session in May.

In light of the recent legislation on the state’s homeowners insurance market, and as the company awaits other “meaningful and necessary legislative changes in Florida,” Heritage has decided to proactively suspend the offering of new personal residential policies in various counties in the state, effective June 3rd, 2022.

However, the insurer does add that it expects this to be a temporary suspension as it remains dedicated to Florida but will continue to evaluate its options and overall strategy in the region, which could ultimately result in other suspensions or openings.

“We are pleased to have completed our catastrophe reinsurance program integrating indemnity-based traditional reinsurance and insurance-linked securities. Our longstanding relationships with existing reinsurers as well as going to the market early contributed to the success of our placement. I was also pleased that the Company’s program had reached a level of maturity making the new RAP program unnecessary to complete the risk transfer. Our super-regional strategy allowed for an orderly placement with our partners in these markets despite deteriorating capacity for Florida risk,” said a spokesperson for the company.