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Floridian insurers United and Heritage both acquire to expand


A number of Floridian primary property and casualty insurance firms are expanding, as they seek to begin operating in new wind exposed states of the U.S., both to acquire new business and also to diversify their exposure away from the peak zone.

The move has ramifications for reinsurance buying, with many Floridan primary insurers being significant users of reinsurance, both traditional as well as collateralized and also using catastrophe bonds as well.

As these insurers grow into new regions, they may take their reinsurance buying habits to these new states, resulting in an increase in reinsurance buying and perhaps more business for insurance-linked securities (ILS) managers, with whom they have built relationships.

However, there is also a chance that the added diversification could make them feel they can rationalise buying to a degree, so the risk transfer they buy may become more targeted.

The latest two firms to announce new expansion efforts are United Insurance Holdings Corp., also known as UPC Insurance, which announced yesterday that it is acquiring Interboro Insurance Company (Interboro), a New York-domiciled property and casualty insurer with authorisation in New York, South Carolina, Alabama, Louisiana, and Washington, D.C.

Then today, Floridian competitor Heritage Insurance Holdings, Inc. announced that it acquiring Zephyr Acquisition Company and its wholly-owned subsidiary, Zephyr Insurance Company, a specialty insurance provider in Hawaii.

Heritage had already announced some expansion plans, as it sought licenses for licenses in North Carolina, South Carolina, Massachusetts and Rhode Island earlier this year, so adding Hawaii is another move into a wind exposed state for the insurer.

United is already licensed and writing across a number of states, but this acquisition of Interboro will grow its footprint considerably, providing it with access to more risk, diversification and also raising the prospects of changes to its reinsurance purchases.

“We are excited about this opportunity,” commented John Forney, President and CEO of UPC Insurance. “Interboro has been in business for over 100 years, and we are proud to add it to the UPC Insurance portfolio. The homeowners book that we will acquire as part of this transaction provides us a big jump start on our New York expansion efforts, and we look forward to working with brokers and policyholders in New York to provide premier service on existing policies and to grow the business in the coming months and years.”

Heritage will benefit from an immediate presence in Hawaii, with Zephyr holding approximately 30% of the wind-only market share in the state according to the insurer.

Heritage said the acquisition is part of its strategy to “diversify business operations and achieve greater synergies in reinsurance while expanding growth opportunities outside of Florida.”

Heritage Chairman and CEO Bruce Lucas said, “We are extremely excited to announce the transaction with Zephyr. The acquisition creates significant reinsurance synergies and enables us to expand into an attractive geographic market. We intend to fund this transaction with current capital and do not intend to pursue a new capital raise at this time, which allows us to deliver maximum shareholder value without dilution.

“The combination of our complementary business models will be immediately accretive to earnings, book value, and return on equity. As the industry evolves we believe companies that are able to successfully execute strategic acquisitions will experience better growth, diversification and reinsurance savings. With this transaction, policyholders in Hawaii will continue to experience the same high levels of service and responsiveness and we look forward to working with the team at Zephyr.”

So Heritage is specifically looking for reinsurance savings. However, the way it buys reinsurance and its use of collateralized cover could actually benefit ILS players.

It’s also worth noting that Heritage has three in-force cat bond issues, the $277.5m Citrus Re Ltd. (Series 2015-1), the $50m Citrus Re Ltd. (Series 2014-2) and the $150m Citrus Re Ltd. (Series 2014-1), all of which can be expanded to cover new regions.

All three of these cat bonds were issued with the ability for Heritage P&C to expand the coverage they provide should it have opened new operations in additional states. The cat bonds all covered Florida named storms initially, but with the ability for them to cover named storm risks in other states if Heritage P&C elected to.

So that means Heritage can expand them to Hawaii perhaps, if it chooses to.

So as Floridan primary insurers grow their footprint it has ramifications for the wider reinsurance and ILS market. Perhaps positive in terms of use of ILS and the relationships that these insurers have built with ILS managers, but also perhaps negative as they diversify and find synergies across reinsurance spend.

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