Small Florida Insurers Rush In On The Quiet After The Storms
09 October 2009 - 2:45AM
Dow Jones News
As big insurance companies back away from insuring homes along
the hurricane-prone coast of Florida, some small, nimble insurers
are rushing in - at least until the next big storm.
The biggest insurance companies pulled back in Florida after a
string of big storms in 2004 and 2005 caused billions of dollars in
insured losses. The vacuum caused by a shortage of insurers, along
with state programs to help build capital, has persuaded around 30
property insurers to come to the state since 2006.
But if a big storm does come along, some of these companies
could be in for a tough lesson, said Amit Kumar of Fox-Pitt
Kelton.
"The new companies have gained, but it is difficult to say if
they would be profitable if you have successive hurricanes," Kumar
said. If an expensive storm season occurs again, "it is difficult
to say if they would survive."
One newcomer is Homeowners Choice Inc. (HCII) of Clearwater,
Fla., which reported gross premiums of $36 million before
reinsurance in the second quarter and net profit of $7 million.
It is important for insurers of Florida homeowners to build up
profits in the storm-free years against the inevitable storms to
come, said Paresh Patel, chairman of Homeowners Choice.
"If you are not starting from a profitable base when bad things
happen to you, things will get worse," Patel said in an interview.
"What we have done is made it an objective to make money and pay
taxes, so that in the event of a loss, we get those tax credits
back."
Another startup is Privilege Underwriters Reciprocal Exchange
LLC, or PURE, which operates on a mutual-type structure and
specializes in insuring high-end homes located near the coast. It
insures around 5,000 families from Florida to Connecticut, wrote
$32 million in premiums before reinsurance in 2008 and had an
operating loss of $3.8 million, despite the lack of big
hurricanes.
Ross Buchmueller, president and chief executive officer of PURE,
also worked for high-net-worth homeowners insurance operations of
Chubb Corp. (CB) and American International Group Inc. (AIG) before
launching PURE. He says his company benefited from knowledge about
hurricanes gained during the big storm years and from the ability
to set rates before he took on new business, which might have
helped the startup win higher rates than old-line carriers that
"might be burdened by their existing books of business."
Insurers that were around for the big storms have struggled to
win regulatory permission to boost rates on existing customers, but
for startups without any customers, setting rates could be a little
smoother.
"All these companies, if they had a chance to do it again, would
do business differently," Buchmueller said.
The biggest insurer in the state is Citizens Property Insurance
Corp., the state-run insurer of last resort, which could turn to
the state for funds if a big storm hits.
The largest private insurer in the state, the Florida unit of
State Farm Insurance Cos. with just under one million policies, has
said it will begin pulling out of the state after being rebuffed in
its efforts to raise rates.
Allstate Corp. (ALL), the second largest homeowner insurer in
the U.S., stopped writing new policies in the state years ago, but
agreed with Florida's insurance office last year to take on 50,000
new homeowner policies and 50,000 new renters of condominium
policies by November 2011. Currently, Allstate's Florida unit has
around 225,000 homeowner, renter and condominium policies.
Despite the relative lack of big storms in the last four years,
the "sheer size of the exposure" and expectations of active storm
cycles to come have made insurers leery of taking on exposure, said
Sam Miller of the Florida Insurance Council, a trade group.
At a Tuesday meeting of the Florida Senate's Committee on
Banking and Insurance, Florida Insurance Commissioner Kevin McCarty
said some insurers could become insolvent even without a big storm
in Florida, due to routine claims and high reinsurance costs,
according to an Associated Press report.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750 4141;
lavonne.kuykendall@dowjones.com