Reinsurance plays an important role in the financial strength and claims-paying ability of PURE. We enter into these reinsurance contracts (known as treaties) in order to reduce the volatility of our results and support prudent growth. Reinsurance treaties provide several types of protection, including:
Per-Risk Pro-Rata. Also known as quota share, these are proportional treaties in which the reinsurer agrees to share in an equal percentage of premiums and losses over a defined time period. In 2018, PURE changed how its quota share program is placed. Before, PURE held a separate quota share contract for the Homeowners, Personal Excess Liability, Collections and Watercraft lines of business. The new structure now combines all of these lines of business (plus Automobile) on a single whole account quota share. This format should provide a more stable long-term result for our valued reinsurance partners by reducing the volatility of individual lines and provide PURE with more sustainable capital support.
Per-Risk XOL. PURE purchases reinsurance to limit the potential impact of any one large loss on our highest valued homes and watercraft, as well as collections of fine art, jewelry and certain automobile collections. Under these treaties, reinsurers not only respond if there is a loss under a covered policy that is in excess of a predetermined limit but also provide important volatility protection against high-severity loss perils (typically large fires).
Catastrophe XOL. PURE purchases significant reinsurance “towers” that protect against losses to multiple policies caused by hurricanes, wildfires, earthquakes and other natural catastrophes that tend to cause widespread damage. We spend a lot of time and analytical effort to evaluate our potential exposure to a variety of natural catastrophes across our geographic footprint. Based on that information, we purchase catastrophe reinsurance to protect PURE against massive catastrophic events (including those events that have much less than a 1-in-250 year modeled probability of occurring) with appropriate “reinstatement” provisions that will provide cover even if such an unthinkable event were to happen multiple times in the same year. Though PURE has experienced multiple large events since inception, none have been large enough to even attach to these treaties.
PURE partners with over 60 highly rated and well-respected reinsurers across all treaties. This diversification helps to mitigate any third-party credit risk and ensures the financial strength and soundness of our reinsurance program.
These companies are willing to put their capital at risk to support PURE’s growth. In the spirit of alignment, we need to ensure we deliver an appropriate profit to these important capital providers to foster long-term support.