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Assurant Inc. (AIZ - Analyst Report) 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 aspects:
 
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 collateralized, respectively).
 
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).
 
Other stocks Eastern Insurance Holdings, Inc. , Enstar Group Limited (ESGR - Snapshot Report) and Kemper Corporation (KMPR - Snapshot Report) with Zacks Rank #1 (Strong Buy) are worth considering.

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