United Insurance Holdings (UPC Insurance) continues to exit homeowners insurance in certain states and accelerate its shift towards commercial property insurance business, with the latest move being to transfer personal lines business in the three Southeast states of Georgia, North Carolina and South Carolina to HCI Group.
The move follows United’s (UPC’s) sale of its personal lines business from the four Northeast states of Connecticut, New Jersey, Massachusetts, and Rhode Island to HCI Group earlier this year.
United (UPC) said this arrangement with HCI will allow it to “reallocate capital from its personal lines portfolio to its fast growing commercial specialty property portfolio, which is underwritten by American Coastal Insurance Company.”
The arrangement will see HCI providing 85% quota share reinsurance on the in-force, new and renewal policies of United Property and Casualty Insurance Company (UPC) in Georgia, North Carolina and South Carolina for the period December 31, 2021 through May 31, 2022.
UPC has a 15% quota share reinsurance deal another reinsurer that will likely stay in place during that time period.
HCI will pay a provisional ceding commission of 25% of premium earned to UPC across the term of the contract that could increase up to 32% depending on the direct loss ratio results for the reinsured business.
It covers estimated ceded earned premium for the quota share period of $33.3 million (85% of $39.2 million), which would drive net ceding commissions to UPC of between $8.3 million and $10.6 million.
HCI will also pay a catastrophe allowance of 9% of premium earned, which is estimated at $3.0 million for the quota share period December 31, 2021 through May 31, 2022.
UPC is also set to grant HCI renewal rights for its personal lines business in Georgia, North Carolina and South Carolina as part of the deal.
HCI is paying UPC an upfront $3.8 million for the renewal rights, which will be adjusted based on the amount of premium transitioned to HCI, to a maximum of $6 million.
UPC Insurance is also set to agree not to compete with HCI for personal lines homeowners business in the three Southeast states until July 1st 2025, effectively locking the company out of returning to that market segment.
“This transaction offers another great opportunity for HCI,” HCI Group Chairman and Chief Executive Officer Paresh Patel commented. “HCI is expanding its relationship with United following a successful transaction in the Northeast. This latest agreement further accelerates HCI towards its growth ambitions, expands the company’s footprint in existing and new states, and brings an established agent network. HCI has the financial strength to support and grow these new business opportunities.”
It’s interesting to observe that in 2021 a number of once Florida focused primary carriers have pulled out of certain areas of business.
Some have pulled back from other coastal state homeowners business, even preferring a return to the still lacking in profits Florida market, but United (UPC) is pulling back on homeowners in many states in favour of commercial risks, while also being an insurer seeking growth in Florida as well.
Many of these carriers have experienced particularly high-growth over the last five years to a decade and it’s perhaps a sign of growing into a market that was softer, but has since hardened for consecutive years, alongside a hardening of reinsurance rates as well.
All of which is making business model adjustments the norm for fast growing property insurance carriers, something that is likely to continue as the market shakes out and these still younger carriers look to find a profitable niche within the industry that they can grow into, while perhaps diversifying and so reducing their reliance on reinsurance as well.