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Reinsurers face Narragansett-Heritage spending cut

Insurance-linked securities (ILS) managers and reinsurers for Florida insurer Heritage and northeast US specialist Narragansett Bay are facing a reduction in spending by the companies following their anticipated merger next year.

Heritage said that reinsurance savings were a major benefit that would follow from its $250mn bid for Narragansett, as it has budgeted for $22.5mn of annualised savings after a two-year phase-in period to allow Narragansett's multi-year contracts to expire.

Heritage makes extensive use of capacity from the ILS market, with Allianz Global Corporate & Specialty, Citrus Re cat bond investors, Aeolus and Everest Re receiving the largest amounts of ceded reinsurance premium from the carrier in 2016, according to schedule F regulatory filings.

But ILS managers did not show up on the top five recipients of premium from Narragansett Bay in 2016, although managers such as LGT, Elementum, and Credit Suisse ILS took in small sums from the carrier.

Ace, Everest Re, Berkley, Catlin and QBE took the most premium from the northeast specialist last year.

However, in a presentation on the proposed M&A deal, Heritage said that Narragansett Bay's largest reinsurers included Swiss Re, Validus Re and Endurance Specialty.

While the lack of ILS participation on Narragansett's programme gives markets a chance to increase their share on an expanded Heritage cover post-acquisition; the combined entity would also need to place less limit overall, putting pressure on signings.

Heritage said in the presentation its reinsurance programme was well suited to absorb Narragansett risk, with "minimal" incremental coverage required.

Heritage has already cut back its reinsurance programme, in part to reflect a reduction in Florida exposures.

At 1 June it cut its retention in half but also reduced overall limit bought from $3.0bn to $2.62bn - including $687.5mn of cat bond coverage.


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