Operating & Financial Review

Creating the model reinsurance portfolio

Union Mutual Fire Insurance Company of Vermontis based in Montpelier, Vermont, where it is a market leader, and has a presence in the whole of New England. The company has a 132-year history, providing residential and small commercial insurance cover and has been an Amlin client for many years.

Union has built up a solid base of both clients and assets, enjoys an A- rating from AM Best and maintains a current policyholders’ surplus of US$76 million. However, as a mutual it relies heavily on buying catastrophe reinsurance, in which the Lloyd’s market is prominent, to offset risks to its capital base. It is also important that this cover is backed by financial strength, evidenced by Amlin’s strong “A” ratings. This lends confidence to both the client and the US regulators.

Union’s clients inhabit ever more densely populated areas and live in some of the highest value real estate in the US. Perceived hurricane risks to New England have escalated over the past few years and Hurricane Katrina in 2005, a landmark catastrophe event, has focussed attention on the entire Eastern seaboard.

The Great Hurricane of 1938 was the New Englandlandmark event and, despite being a category 3 hurricane hitting a sparsely populated area, AIR, the Boston-based catastrophe software modellingcompany, estimates that the insured loss would be US$30 billionat today’s values and demographics. Union buys reinsurancecover for a 1 in 100 year event, which would be considerably larger than the 1938 event.

Union uses sophisticated portfolio optimisation techniques in order to manage its catastrophe exposures, particularly for their coastal policies. The granular data they provide is regularly reviewed by Amlin’s Robin Etheridge and his team in order to price their catastrophe programme and each year we offer a range of quotations to mirror the extent of Union’s changing risk exposures. Over the years that Amlin have reinsured Union, their catastrophe programme has more than trebled in size.

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