American Coastal estimates hurricane Milton losses well-below Armor cat bond trigger

American Coastal Insurance Company, the main entity of what was the United Insurance Holdings group, has pre-announced an expectation of up to $200 million in gross losses from hurricane Milton, at which level it will make reinsurance recoveries but its recently sponsored catastrophe bond would not be triggered.

American Coastal President Brad Martz estimated that hurricane Milton will drive a gross loss of between $150 million and $200 million for the insurer, while the insurers retained losses from the storm are expected to be $16.2 million, net of tax impacts.

$7.9 million of this will be retained by AmCoastal itself, while a further $8.3 million will be retained by its captive reinsurance entity.

In addition, due to reinsurance recoveries being made, an additional roughly $13 million of reinstatement premiums will be due, but these are set to be amortized as ceded premiums earned over the remaining eight month coverage period, from October 2024 through May 2025, the company said.

Given the reinstatement of reinsurance that is recovered from, American Coastal will retain its full catastrophe reinsurance tower.

Martz explained, “Hurricanes Helene and Milton were severe storms with devastating impact, and our primary focus is on servicing our policyholders. ACIC’s underwriting discipline and robust reinsurance program serve to protect AmCoastal’s balance sheet and reduce volatility from the active Atlantic hurricane season. We estimate a gross loss between $150 and $200 million from Milton, leaving 100 percent of AmCoastal’s $1.26 billion occurrence based reinsurance tower available for subsequent catastrophe events. With AmCoastal’s reinsurance tower fully intact and a lower $10.3 million retention on potential second and third events, net of tax impacts, the Company remains strongly positioned for the remainder of the 2024 Atlantic hurricane season, and is expected to remain profitable in the fourth quarter, despite Milton’s impact.”

Hurricanes Debby and Helene from the third quarter of 2024 are set to be a retained event for the insurer, with approximately $3.8 million, net of tax impacts split $2.4 million for AmCoastal, $1.4 million  for the captive reinsurer.

The insurer said it does not expect to tap into the excess of loss layers of its reinsurance program with Debby and Helene and expects to remain profitable for the third-quarter.

$200 million of American Coastal’s catastrophe reinsurance comes from the capital markets via its April 2024 issuance of a Armor Re II Ltd. (Series 2024-1) catastrophe bond.

While that cat bond coverage is in-force, the attachment point for the Armor Re II cat bond is set at $275 million of losses, providing coverage for a share of losses up to exhaustion of coverage at $575 million.

As a result, with the company estimating losses from hurricane Milton of below $200 million at this time, it would take quite some loss creep for the catastrophe bond to be affected, it seems.

It’s worth noting here, that the Armor Re II cat bond from American Coastal Insurance was not a bond considered especially at-risk from hurricane Milton, with some broker pricing sheets not marking it down at all after the storm made landfall.

Even the pricing sheets we’ve seen that did mark this bond down a little continue to have it priced at around par, while others hold it priced seasonally above par, as might be expected for a loss-free US wind bond at this time of year.