Reinsurance is a critical mechanism for TypTap’s business. Just as TypTap writes policies for homeowner and flood coverage, reinsurance is simply insurance to mitigate significant risk exposure and ensure the stability of TypTap’s business or stop-loss insurance. It’s a practice whereby TypTap transfer or “cedes” portions of its risk portfolio to other parties to reduce the likelihood of paying a larger obligation resulting from an insurance claim. In catastrophe loss scenarios, the reinsurer indemnifies TypTap’s portfolio of losses. In turn, TypTap reimburses its individual policyholders for damages from covered losses.
This year, a significant increase in global losses resulted in constrained and uncharacteristic pricing spikes across the reinsurance market. Although TypTap is not making significant claims that contribute to the price bulge, the company has maintained its diligent approach to prioritizing superior and diversified reinsurance coverage for the long-term benefit of its business. TypTap holds a net positive position over the long run that is not punitive from a pricing standpoint, increasing the favorability of its risk among blue chip reinsurers. In other words, TypTap’s historical experience is stable and, in many cases, industry leading.
TypTap’s reinsurance philosophy is: when you cannot eliminate risk, mitigate it. All insurers are legally required to maintain sufficient reserves to pay all potential claims from insured policies, and TypTap goes well beyond minimums and common industry practices. TypTap buys more reinsurance, has lower retention, and greater protection for its business compared with peers. TypTap mitigates risk by geographic region and peril, protects against a large event or multiple events, and avoids ceding away its profitable business.