Assurant Inc. (AIZ - Analyst Report) announced its 2012 comprehensive catastrophe (CAT) reinsurance program. A reinsurance agreement is a kind of reimbursement program for an insurance company.
The 2012 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 about 186 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 $465 million in excess of a $181 million retention, as FHCF is the most cost-effective reinsurance available.
The second part of the program is on a per-occurrence basis, which will provide protection of up to $1.5 billion in excess of $240 million retention. This coverage will be available in five parts or layers, with a co-participation of 5% by Assurant in the fifth layer.
The reinsurance agreement also includes catastrophe bonds issuance by Ibis Re Ltd., amounting to $280 million. In order to fund its obligations to Assurant, Ibis Re had issued catastrophe bonds in January 2012 and April 2010.
Taking into account the fact that Florida has become a hurricane-prone state, Assurant is 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 third occurrences, even with retentions as low as $120 million.
In 2012, the reinsurance program will reduce the net premiums earned by nearly $240 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.
The stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.
Based in New York’s financial district, Assurant competes with Principal Financial Group Inc. (PFG - Analyst Report), Loews Corp. (L - Analyst Report) and Conesco Inc. (CNO - Analyst Report) among others.