Heritage continues expansion, begins Alabama P&C underwriting

Expansive insurer Heritage Insurance Holdings, Inc. has said that its Heritage Property & Casualty Insurance subsidiary has underwritten its first policy in the state of Alabama, taking the number of U.S. states it underwrites in to five, so growing the area its reinsurance and catastrophe bonds could be required to protect it in.

Heritage has been steadily applying for insurance licenses and growing its footprint in the United States, having begun life as a Florida-only property insurer.

Now the firm underwrites its P&C insurance business in Florida, Georgia, North Carolina, South Carolina and now Alabama, with its Zephyr Insurance subsidiary also writing business in Hawaii.

Bruce Lucas, Chairman of the Board of Directors and Chief Executive Officer of Heritage, commented; “The expansion into Alabama continues our strategic diversification initiatives and strengthens our presence in the south-eastern United States. Diversification of our portfolio is a top priority and our team is excited to work with agents in Alabama to provide the marketplace with affordable homeowners’ insurance.”

Heritage tends to underwrite in states that are wind-exposed, so Alabama perhaps has the smallest stretch of hurricane exposed coastline of the regions it now operates in, but the property risks in the state are akin to those in northern Florida and Georgia, so it’s not a surprising place to see the insurer expand into.

Heritage has been clever to line up its currently $737.5 million of in-force catastrophe bonds with the ability for the covered area to be expanded at a bond reset. That means Heritage can add Alabama to the covered area for any of its Citrus Re catastrophe bonds, should it choose to, as long as the risk does not rise more than the reset terms allow for.

Investors in the catastrophe bonds would be compensated in accordance with any change in risk profile, so any expansion of the covered area or addition of another underwriting brand (which the terms of the latest Citrus cat bond also allows).

The benefits to Heritage of lining up its catastrophe bond backed reinsurance coverage in this way are that the insurer can expand safe in the knowledge that it has reinsurance structures in place that could at least cover its initial growth into a new region, if required.

Of course whether Heritage needs to add Alabama into an existing cat bond remains to be seen, it will depend on the insurers growth rate in the state and whether it looks to traditional reinsurance first, but the option is there.

What the expansion does mean though, is that Heritage is likely to continue to increase its use of the capital markets and insurance-linked securities (ILS) as a source of fully-collateralized reinsurance protection, ultimately bringing a growing pool of risk to the ILS investor community.