Heritage Property & Casualty Insurance, a subsidiary of Heritage Insurance Holdings, Inc., has put in its applications to extend its operations beyond Florida into four new states, as the property focused insurer looks to expand and diversify.
Heritage P&C has applied for licenses in North Carolina, South Carolina, Massachusetts and Rhode Island, all U.S. wind exposed states with residential areas that should fit the insurers risk appetite and allow it to diversify up the coast.
This expansion into new states had been expected from the start, as Heritage P&C has always had a stated goal of entering new markets to grow its book of homeowners and commercial property business.
Heritage has expanded rapidly, partly with the assistance of the Florida Citizens depopulation program which has allowed the insurer to take on wind exposed properties around the Florida coastline.
Heritage has been involved in numerous takeouts from Citizens since it launched in 2012, enabling it to build a strong book of business in Florida, but also clearly leaving the insurer with a high concentration in that state and resulting exposure to Florida hurricanes.
By diversifying into other wind exposed states, Heritage P&C will continue to focus on offering its product to property owners in regions where rates are typically higher. It is also certain to result in greater use of reinsurance protection by Heritage, which has become a strong proponent of catastrophe bonds and collateralized reinsurance coverage.
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.
The coverage for new states would be factored into the cat bonds after a reset, when Heritage’s covered portfolio could be remodelled and the deals exposure re-calculated.
It’s not a given that Heritage will elect to expand the coverage provided by the Citrus Re catastrophe bonds. It doesn’t have to do so, but it will have an option to if it chooses. It’s likely that any expansion would not happen immediately anyway, as Heritage P&C will need to build a portfolio of risk in these states, which can take time as they do not have depopulation programs like Florida’s.
Heritage’s expansion is likely good news for the reinsurance and insurance-linked securities (ILS) markets though, with the insurer utilising a significant amount of risk transfer given the exposed regions it underwrites in.
As Heritage expands so to will its reinsurance program requirements, which could end up in more catastrophe bonds in future and the use of more collateralized reinsurance coverage.
If Heritage P&C elects to broaden the coverage provided by some of its Citrus Re cat bonds due to the expansion into new states, before the bonds maturities, investors holding the bonds will be compensated through a variable reset mechanism that will take into account the changed exposure.
If that does happen it could be the first case of a catastrophe bond being reset to include exposures in a completely new state, compared to the transactions initial focus and exposure at launch.
Meanwhile, Heritage also remains hungry for more business in Florida too, of course. The insurer was approved to takeout an additional 40,000 policies from Citizens earlier this month.