Universal starts early on reinsurance renewal, sharpens pencils on Florida

Universal Insurance Holdings, the Florida headquartered primary insurance carrier, has already got started on the renewals for its reinsurance arrangements, as the company looks to get ahead of the market and continues to take steps to restore profitability to its Florida book.

Previously, Universal strengthened its current accident year and prior year reserves as it sought to mitigate the effects of inflationary pressures on loss cost trends.

In reporting its results last night the carrier revealed some of that reserve strengthening was related to 2017’s hurricane Irma, which suggests its reinsurance partners may have absorbed a share of that, as the insurer still has cover available for prior year hurricane events, such as Irma.

Florida is a key source of inflationary pressure for the insurer it seems, so it’s no surprise to hear its CEO say that Universal continues to “sharpen its pencils” on Florida rates and pricing.

Universal reported a $64.5m Q4 loss due to the reserve charges, which the company said amounted to net prior years’ adverse reserve development of $36.5 million for the quarter and $54.5 million for the year.

This was primarily driven by non-catastrophe claims, but to a lesser extent Hurricane Irma related claims were also included, Universal reported.

For the full-year 2021, Universal delivered a $28.4m of income before taxes, while growth was also a factor for the insurer during the year, as it expanded to a record size.

“We ended the year with a record of approximately $1.7 billion of premiums in force and a return on average equity of 4.6%, despite the accelerated inflationary trends we announced on February 10th, which resulted in the Company increasing reserves,” explained Stephen J. Donaghy, Chief Executive Officer.

Rate is key in the challenged Florida property insurance market, where numerous carriers are currently thought at risk of losing their ratings and considered to be facing a particularly tough reinsurance renewal.

In fact, some carriers are thought as likely to face particular difficulty in securing sufficient reinsurance at the June renewals, which may be a factor in Universal choosing to get out early this time around.

Donaghy noted the importance of rate in the Florida market right now, saying, “The lion’s share of our approved rate filings for UPCIC in Florida over the past several quarters for new and renewal business are now effective.”

Adding that, “We continue to sharpen our pencils on our 2022 Florida primary rate filing in the coming months.”

On the reinsurance renewal, Donaghy also said the company has been, “Hitting the ground running on our reinsurance renewal, with over 77% of capacity on our first event All States tower already secured.”

That could be key, as there is an expectation that more bad news will emerge for Florida carriers over the coming months as the reinsurance renewals approach.

Getting ahead of that could result in improved execution for any reinsurance renewals that might normally target June.

In recent years, some of the Florida focused carriers that have come to market earlier have been able to secure the necessary capacity at better terms and if news on carrier performance worsens as the renewal approaches, then the expected hardening could accelerate.

Universal also raised new funds in Q4, with a $100 million private placement of senior unsecured notes.

Being well-capitalised is going to be key for any insurer with a Florida market focus in 2022 and with so many thinly-capitalised players out there, those with sufficient capital and reinsurance stand to be best-positioned for the future in that market and able to take advantage of opportunities in the hardening state.