American Coastal on course to secure more reinsurance with June renewal near completion

American Coastal Insurance Corporation has secured more than 90% of the total reinsurance limit it’s seeking for its June 1st renewal, as the firm looks to increase the total open market limit by around $265 million for the 2024 hurricane season, $200 million of which comes from its new, multi-year Armor Re II Ltd. (Series 2024-1) catastrophe bond.

As part of its Q1 2024 results announcement, American Coastal has provided an update on its mid-year reinsurance renewal, which was discussed by executives during the carrier’s earnings call.

“We have increased our multi-year reinsurance commitments, enhancing stability. Our 2024 catastrophe reinsurance program was marketed with a structure that further protects the balance sheet,” said Chief Executive Officer (CEO), Dan Peed.

He explained that the firm has been able to increase the expected exhaustion point with the successful placement of its new $200 million cat bond, which was oversubscribed at the lower end of the expected coupon range, providing the firm with coverage for Florida named storms.

“To reduce earnings volatility, we also continue to target a first event retention of less than one quarter’s expected underwriting profit before CAT losses. AmCoastal enjoys a mature and defensible portfolio with both a low underlying combined ratio and net catastrophe exposure near an all-time low,” said Peed.

Providing some additional colour on the firm’s mid-year placement, President, Brad Martz, said that as of today, American Coastal has “secured over 90% of the total limit being sought, and the placement is progressing in line with our expectations.”

For this upcoming hurricane season, which commences on June 1st, Martz said that the primary goal for the firm is threefold.

“First, we want to increase the overall protection, second, we want to improve cost efficiency and third, we want to maintain retentions that are similar as a percentage of our capital from the expiring program, along with those retentions being less than our underwriting profit before an event in any typical quarter,” said the President.

“I believe we will achieve all three this year,” he added.

For American Coastal, the company is seeking to purchase an additional $265 million in limit, which includes the $200 million multi-year cat bond, and also a $65 million FORA replacement layer, taking the exhaustion point up closer to $1.2 billion. The AIR exhaustion point has increased from 167-YR to 208-YR return period for 2024.

FORA was a $1 billion layer of tax-payer supported funding called the Florida Optional Reinsurance Assistance Program (FORA), that provided reinsurance support for layers beneath the FHCF and insurers could opt into. This, alongside the RAP layer, both of which were part of the Florida property insurance market reforms, is not available this year, which has contributed to increased demand for reinsurance in the state.

As highlighted by both Peed and Martz, the most significant change this year is the reduction of the American Coastal quota share from 40% to 20%.

“The net result of that will be a material increase in net premiums earned, partially offset by higher net losses, as we retain more of those, and higher policy acquisition costs, as we see a decrease in ceding commissions during the treaty year from June 1, 2024 through May 31 of 2025, as we seek to retain more of our gross underwriting margin,” said Martz.

You can see American Coastal’s projected 2024-2025 catastrophe reinsurance program below:

The President went on to note that the company intends to keep the statutory insurance company’s retention at $10 million, but increase its captive’s first event retention from $2.3 million to approximately $10 million, and reduce the second event retention to only $10 million.

For New York domiciled Interboro’s mid-year reinsurance placement, which American Coastal announced today it has agreed to sell to Forza, Martz explained that the exhaustion point will look very similar to the expiring program, despite the exposure base being down about 17% year-over-year at September 30th, 2024. Additionally, the retention will be reduced from $3 million to $2.5 million.

“We expect to have both towers fully-placed well before June 1st and we will provide more information on the final limits, retentions, and costs, once both programs have been completed,” said Martz.

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