1347 PIH sells homeowners business to FedNat, to transition to reinsurer

1347 Property Insurance Holdings, Inc. has said that it plans to transition into a company offering reinsurance and investment management services after selling its homeowners insurance underwriting operations to expansive Florida specialist FedNat Holding Company.

The pair announced a pending transaction yesterday that will see FedNat acquiring the homeowners insurance operations (Maison) of 1347 PIH, which includes the Maison Insurance Company, Maison Managers, Inc., and ClaimCor LLC units.

Maison is a property and casualty insurer focused on coastal property risks in Louisiana, Texas and Florida, writing gross written premium of $70.6 million in the nine months to September 30th 2018 and with total statutory surplus of $35.6 million.

These insurance operations will become wholly-owned subsidiaries of FedNat and CEO Douglas Raucy, who is also President of Maison, and Dean Stroud, Chief Underwriting Officer of 1347 PIH, are expected to become FedNat employees.

The cash and stock backed sale of Maison is valued at approximately $51 million, but there are benefits that will flow both ways after the sale has completed and the two companies enter into reinsurance and investment management relationships.

Michael H. Braun, FedNat’s Chief Executive Officer, commented on the acquisition, “Maison represents a unique opportunity to accelerate the diversification of our predominantly Florida homeowners’ book into Louisiana and coastal Texas, two states where we have already been operating and have been looking for additional growth opportunities. The transaction is a great financial and strategic fit for FedNat. The acquisition is a digestible size and efficiently financed. Based on meaningful reinsurance and operating expense synergies, we expect the acquisition to be immediately accretive to earnings per share. Strategically, the deal diversifies our book and enhances our platform for further geographic expansion through direct access to non-Florida agents, which complements our existing wholesale distribution in Texas and Louisiana. Finally, Maison brings a strong team that fits well with our culture focused on quality underwriting and excellent in-market agent and distribution relationships. We’re excited to welcome the Maison team led by Doug Raucy and Dean Stroud and look forward to our opportunity to drive enhanced value for FedNat shareholders.”

Mr. Douglas Raucy, President of Maison, said, “We are very excited about working with Michael and the team at FedNat, which should serve as an excellent partnership for our insurance company. FedNat shares our vision for profitably growing property and casualty business through measured geographic expansion and further cultivating value-added relationships with agency partners. We look forward to continuing to execute our strategic plan under the Maison brand with the support, expertise and financial strength of our new partners at FedNat.”

The interesting piece of the arrangement is that after the sale of its homeowners underwriting business is completed, 1347 PIH will get five-year rights of first refusal to provide reinsurance of up to 7.5% of any layer in FedNat’s catastrophe reinsurance program, subject to the annual reinsurance limit of $15 million.

In addition, 1347 PIH will also enter into a five-year agreement to provide investment advisory services to FedNat as well.

1347 PIH said it will maintain its NASDAQ listing after the sale of the insurance operations and will the proceeds from the sale to “launch a new growth strategy focused on reinsurance, investment management and new investment opportunities.”

This will involve using the firms reinsurance unit, PIH Re Ltd., which is not being sold, to act as a reinsurer with specific, guaranteed access to the FedNat program.

1347 PIH said it will reveal more about the strategy behind this move prior to the close of the sale of its insurance business to FedNat.

Kyle Cerminara, Chairman of 1347 PIH, commented, “We are pleased to announce a transaction that benefits all parties and our shareholders. We believe that FedNat represents a strong partner that will allow Maison and its policyholders an opportunity to achieve their full potential, while at the same time receiving a valuation for Maison that we felt was fair and beneficial for our shareholders. Our entire Board of Directors has significant experience and skills enabling us to leverage our expertise in reinsurance and investment management to achieve a strong return for our shareholders, and we expect to announce the details of this strategy in the coming months.”

With a reinsurance mandate and an investment advisory agreement in place, it will be interesting to see how this strategy unfolds.

The 1347 PIH leadership has repeatedly shown its liking for and attraction to collateralized reinsurance and insurance-linked investment strategies over the years, including with the launch of Insurance Income Strategies last year.

Whether Bermuda captive reinsurance firm PIH Re Ltd. simply becomes a traditional self-reinsurance option for FedNat, or seeks to attract investor capital and operate in a more “insurance-linked” manner, the goal will be to find a sweet spot where by the reinsurer and the reinsurance agreement deliver opportunities for profit to 1347 PIH, while delivering capital efficiencies to FedNat.

FedNat will benefit from a more diversified book after buying Maison’s underwriting business, with enhanced reach into new states, reinsurance synergies to benefit from, as well as the ongoing relationship with 1347 PIH. All of which will help to propel the expansive coastal property insurers’ ongoing growth.