AmCoastal boosts catastrophe bond with $1.2 billion reinsurance tower

American Coastal Insurance (AmCoastal) has successfully expanded the capacity of its main catastrophe reinsurance tower to approximately $1.2 billion for the year 2024, following the issuance of a new catastrophe bond, as stated by CEO Dan Peed.

The insurer managed to close a deal for the $200 million Armor Re II Ltd. Florida named storm cat bond in April, placing it within the lower half of the initial pricing guidance. This new catastrophe bond represents about two-thirds of the upper layer of AmCoastal’s catastrophe reinsurance tower for the upcoming year.

During the company’s recent earnings call, Peed highlighted the strategic enhancements made to their reinsurance program.

“We have increased our multi-year reinsurance commitments, enhancing stability. Our 2024 catastrophe reinsurance program was marketed with a structure that further protects the balance sheet,” Peed said, emphasizing the bond’s role in boosting the program’s upper limit, which was significantly oversubscribed.

AmCoastal president Brad Martz explained the progress in renewing the reinsurance tower, mentioning that over 90% of the targeted coverage has already been secured, aligning with the company’s expectations. He outlined three primary objectives for the 2024 hurricane season: increasing overall protection, improving cost efficiency, and maintaining similar retention levels.

“I believe we will achieve all three this year,” Martz said.

Martz added that the company aims to purchase an additional $265 million in coverage from the private market this year, which would extend the tower’s exhaustion point closer to the $1.2 billion mark, based on a 208-year return period as projected by the AIR hurricane model. This is an increase from the 167-year return period of the expiring program.

The additional $200 million of this limit was secured through the newly closed three-year catastrophe bond. Martz also noted a significant change in AmCoastal’s quota share reinsurance, reducing it from 40% to 20%, which he expects to lead to an increase in net premiums earned. This shift is expected to be partly offset by higher net losses due to the insurer retaining a greater share of these losses.

Martz also shared that the full placement of both reinsurance towers is anticipated to be completed well before the June 1 deadline, promising further updates on the final limits, retentions, and costs upon completion of the programs.