Florida-based insurtech HCI Group has agreed to acquire personal lines insurance business in four northeastern US states from P&C insurer United Insurance Holdings Corp. (UPC).
Under the agreement, HCI will provide 69.5% quota share reinsurance on all of United’s in-force, new and renewal policies in Connecticut, Massachusetts, New Jersey, and Rhode Island from December 31, 2020 through May 31, 2021
In exchange, HCI will pay United an allowance of $4.4 million towards already purchased catastrophe reinsurance and a provisional ceding commission of 25% of premium.
That percentage could increase up to 31.5% depending on the direct loss ratio results for the reinsured business.
The estimated ceded earned premium for the quota share is $37.6 million (69.5% of $54.2 million) and will result in net ceding commissions to UPC between $13.8 million and $16.3 million, including a $4.4 million catastrophe reinsurance allowance.
The business to be transferred represents approximately $130 million of annual premiums.
In addition, HCI will replace all of United’s personal lines policies in the four states, provide United 100,000 shares of HCI common stock, and pay United a cash payment of up to $3.1 million depending on the amount of premium transitioned.
And finally, United has agreed not to compete with HCI for the issuance of personal lines for homeowners business in the four states until July 1, 2024.
“This transaction with United is a win for both HCI and United,” said HCI Group Chairman and Chief Executive Officer Paresh Patel. “It accelerates HCI’s plan to expand nationally by acquiring a seasoned book of business, established agent network and associated data. HCI has the financial strength to support and grow these new business opportunities.”
While the transaction remains subject to regulatory approval, the quota share reinsurance agreement is expected to be effective no later than December 31, 2020.
Raymond James is acting as financial advisor to UPC in the transactions and Debevoise & Plimpton LLP is acting as legal advisor. Foley & Lardner LLP is acting as legal advisor to HCI.