What is Reinsurance
Simply put, reinsurance is insurance for insurance companies. In this transaction, the insurance company or “cedent” transfers a portion of its risk to the reinsurance company or “reinsurer” in exchange for a premium. Insurance companies utilize reinsurance as a financial tool to reduce volatility and assist in risk mitigation from hurricanes, tornadoes, and other catastrophe-related events
What is a Reinsurance Tower
While there can be many different ways to build a reinsurance program, a common structure is referred to as a “reinsurance tower” as this represents the total reinsurance coverage available to the insurance company in a catastrophe event. In this framework, a bottom portion of the tower is retained by the insurance company and the portion above it is transferred or “ceded” to the reinsurer. The retained piece or “retention” is like a deductible as it must be met by the insurance company before the reinsurance coverage kicks in. The reinsurance coverage is paid by the reinsurer.
Why it Matters
TypTap Insurance Company (TypTap) purchases a comprehensive reinsurance program to indemnify against claims costs that may accumulate from a catastrophic event(s) that affects many of its policyholders. Like prior years, in 2023 TypTap secured a conservative reinsurance tower meaning its retention is modest and its reinsurance coverage is significant. TypTap reduced its per-event retention to $9M while increasing the amount of its reinsurance coverage in Florida. TypTap’s total reinsurance tower is $684.2M meaning TypTap has full reinsurance protection for a single catastrophe event that causes nearly $700M in policy claims to its policyholders. Not only that, but TypTap also secured reinsurance coverage to protect against the chance of multiple catastrophe-related events occurring within the same year. TypTap has $990.8M in total annual reinsurance coverage to indemnify against all policy claims throughout the 12-month policy period.
TypTap’s modest “out of pocket” retention coupled with its significant reinsurance coverage benefits both the company and its policyholders alike as it ensures TypTap maintains its financial strength and stability.
HCI Group is the parent company of TypTap. To learn more about TypTap’s recent reinsurance placement, review HCI Group Inc.’s 8-K filed on May 31, 2023.