) announced its 2013 comprehensive catastrophe (CAT) reinsurance
program. A reinsurance agreement is a kind of reimbursement
program for an insurance company.
The 2013 CAT reinsurance program includes the following
Participation in the Florida Hurricane Catastrophe Fund (FHCF)
program has been made mandatory for insurers writing property
insurance in the state of Florida. The FHCF provides reinsurance
to 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 $503
million in excess of a $192 million retention, as FHCF is the
most cost-effective reinsurance available.
Another part of the program is on a per-occurrence basis,
which will provide protection of up to $1.82 billion in excess of
$240 million retention. This coverage will be available in seven
parts or layers and will be provided through traditional
reinsurance and catastrophe bonds.
The reinsurance agreement also includes catastrophe bonds
issuance by Ibis Re II Ltd., amounting to $315 million. In order
to fund its obligations to Assurant, Ibis Re II had issued
catastrophe bonds in January 2012 and June 2013.
Taking into account the fact that Florida has become a
hurricane-prone state, Assurant is also opting for multiple storm
protection coverage to safeguard itself from further losses. As a
result, the company would be able to recover up to $100 million
for the second and subsequent occurrences, even with retentions
as low as $140 million.
The company has also taken supplement reinsurance coverage in
the form of Multi-year traditional and collateralized capacity.
This will provide $140 million of limit for coverage in addition
to the IBIS Re II, Ltd. on a multi-year basis ($70 million
multi-year traditional, and $70 million multi-year
In 2013, the reinsurance program will reduce the net premiums
earned by nearly $245 million. Assurant's CAT reinsurance
agreements are part of its catastrophe management strategy, which
is intended to provide shareholders an acceptable return on the
risks assumed in its property business and to reduce variability
of earnings while providing protection to its customers.
Assurant has taken an extended reinsurance cover since the
company's business exposure in catastrophe prone areas has
increased. The company has placed its reinsurance program with
reinsurers most of which are carrying strong investment grade
ratings of A- or better by A.M. Best.
The stock currently retains a Zacks Rank #4 (Sell).
Eastern Insurance Holdings, Inc.
Enstar Group Limited
) with Zacks Rank #1 (Strong Buy) are worth considering.
ASSURANT INC (AIZ): Free Stock Analysis
EASTERN INSURNC (EIHI): Free Stock Analysis
ENSTAR GROUP LT (ESGR): Free Stock Analysis
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