AIZ Assurant Inc

Yesterday, Assurant Specialty, a unit of Assurant Inc. (AIZ) has announced its comprehensive catastrophe (CAT) reinsurance program so as to shield itself from losses in 2011 that looms ahead as an above-average hurricane season. A reinsurance agreement is a kind of reimbursement program for an insurance company.

The CAT reinsurance program has been designed in layers with purchases being made in three different parts:

The first one being the participation in the Florida Hurricane Catastrophe Fund (FHCF) program is 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 $435 million in excess of a $170 million retention, as the FHCF is the most cost-effective reinsurance available.

The second part is on a per-occurrence basis, which will provide protection of up to $1.31 billion in excess of $190 million retention. This coverage will be available in 5 parts or layers, with a co-participation of 5% in the fifth layer by Assurant.

Any amount received from the FHCF will be deducted from the amount recoverable from the reinsurer. The ‘per occurrence’ clause frees the agreement from being claims-based; that is, the company will be able to recover the amount if the catastrophe occurs, irrespective of when it places the claim. 

Ibis Re Ltd.provided $300 million of the total per-occurrence reinsurance. In order to fund its obligations to Assurant, Ibis Re had issued catastrophe bonds in May 2009 and April 2010.

Taking into account the fact that Florida has become a hurricane-prone state, Assurant is also providing for subsequent storm coverage, to safeguard itself from further losses. By this, the company would be able to recover up to $90 million for the second and third occurrences, even with retentions as low as $100 million.

In 2011, the reinsurance program will reduce the net premiums earned by nearly $219 million. Assurant’s CAT reinsurance agreements are part of Assurant’s catastrophe management strategy, which is intended to provide the shareholders an acceptable return on the risks assumed in its property business, and to reduce variability of earnings while providing protection to its customers.

Based in New York’s financial district, Assurant competes with Principal Financial Group Inc. (PFG), Loews Corp. (L), Conesco Inc. (CNO) among others.

 
ASSURANT INC (AIZ): Free Stock Analysis Report
 
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PRINCIPAL FINL (PFG): Free Stock Analysis Report
 
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