Florida headquartered and expansive property casualty insurer Heritage Insurance Holdings, Inc. has successfully secured its 2018/19 reinsurance program at almost flat rates, citing a risk adjusted cost increase of just 1% at its latest renewal.
Heritage has been steadily expanding across the United States from its home base in Florida, with acquisitions and new state licenses now meaning the insurer counts itself as a Super Regional Insurer, resulting in its insured value concentrations in Florida having more than halved from over 70% to just 32% in one year.
This expansion, greater diversification and focus away from Florida may have helped Heritage at its latest reinsurance renewal, which the firm says it has achieved at attractive pricing.
This expansion and diversification away from Florida has also helped Heritage’s results, with the firm reporting an improved core loss ratio of just 23.4% and delivering a 19.1% increase in book value per share quarter-over-quarter.
At the same time, the expansion of Heritage’s business has resulted in an enlarged underwriting portfolio, with premiums in force rising by 48% to $923.3 million at March 31st 2018.
Premiums underwritten in the first-quarter rose by 44%, although premiums earned only rose 15% as the company ceded a greater proportion of premiums to reinsurance partners. However, these increased cessions were driven by quota share arrangements that the acquired Narragansett Bay Insurance Company had in place.
Without those Heritage would actually have ceded less premiums, at 38.3% for the first quarter of 2018.
Bruce Lucas, Chairman and CEO of Heritage, commented on the results, “We believe our diversified business plan is paying off, as evidenced by our results. Year-over-year, our consolidated gross loss ratio declined 6.8 points to 23.4%. Our vertically integrated claims model and diversification away from AOB prone areas are favorably impacting our consolidated loss ratio, and were key factors in lowering our net combined ratio from 94.8% to 82.2% year-over-year.”
Interestingly, Heritage has also closed 92% of its hurricane Irma claims and continues to proactively perform repair services using its vertically integrated service provision team.
This may have helped Heritage have a lower level of hurricane Irma claims reopened than some other companies, which its prospective reinsurance panel for 2018 will have appreciated.
Lucas explained, “We are taking active steps to expand Contractors Alliance Network to all states, which we believe will positively impact future consolidated loss ratios.”
The expansion and diversification of Heritage has also helped the insurer greatly improve its results, minimising the volatility it could experience from Florida in future.
Lucas discussed this saying, “We began an initiative in 2015 to diversify our business, which has been highly successful. We are no longer a Florida-only insurer and have transformed the company into a Super Regional Insurer, which is evident when looking at our consolidated total insured value by region, especially Florida, where the percentage of Florida TIV declined from 70.1% to 31.8% year-over-year.”
The evolution of the Heritage business will have helped it to secure better reinsurance rates than some competitors may be able at the mid-year renewals, with the greater expansion and diversification, the integration of claims assessment and repair units, and the proactive way it has dealt with hurricane Irma losses, all likely to have helped the insurer keep its reinsurance pricing keen.
Previously, Heritage had said it hoped that its mid-year 2018 reinsurance renewal pricing would be relatively flat and it seems that has proven to be the case.
“We have completed our 2018-2019 reinsurance program with favorable results. Year-over-year, our reinsurance costs only increased less than 1% on a risk adjusted basis, substantially better than our initial projections,” Lucas said.
Heritage still anticipates making some recoveries under its Citrus Re catastrophe bond protection, which could total more than $104 million of reinsurance recoveries and perhaps explains why we haven’t seen the insurer back in the cat bond market yet in 2018.
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