Bruce Lucas, CEO of property and casualty (P&C) insurer Heritage Insurance Holdings, Inc, has said that the company’s performance has been boosted by its shift away from Florida business in recent years.
Although it remains domiciled in Florida, since 2016 Heritage has been shutting off business in what it considers to be “troubled regions” of the state.
At year-end 2019, approximately 30% of the company’s total insurable value (TIV) was in Florida with only 6.4% within the border of the Tri-County region.
Last year, Heritage grew its net income by 5% to $28.6 million, with a 6.2% increase in gross written premiums to $235.4 million.
This consisted of 9.4% growth outside Florida and 3.5% growth in Florida, reflecting organic growth across all states and lines of business.
“We worked incredibly hard over the last four years to change the mix of our portfolio to be more diversified and less dependent on the volatility in the tri-county region in Florida market in total,” Lucas said alongside the release of Heritage’s 2019 results.
“Unlike some of our peers, many of our key metrics that have been improving as a result of the prudent steps we’ve taken and we believe, that today we have a better spread of risk, a stronger balance sheet, more adequate reserves and more conservative financial leverage.”
The primary market in Florida is hardening at the fastest pace in recent memory, but Lucas noted that many Florida insurers have suppressed pricing in the past to grow their market share, with many also understating loss reserves to support growth.
“That certainly makes them look good in the short-term, but it is not a viable long-term business plan,” he warned. “Growing top line at inadequate rates only compounds solvency issues, rate need and adverse reserve development.”
According to Lucas, numerous companies have only recently begun to address these issues by closing territories, non-renewing agents and policies, and seeking large rate increases of between 20% and 40%.
“I believe these trends will continue in 2020 as numerous companies continue to struggle with the compounded problem of fast growth and inadequate pricing and reserves,” he stated.
Thanks to its diversification, Heritage has now achieved six consecutive quarters of favourable reserve development while also increasing its non-cat reserves.
However, Lucas was quick to add that there was still room for growth in Florida and that Heritage will continue to look for opportunities in the state this year, although this will more likely be through organic means rather than through M&A.
“I’ve seen several opportunities recently companies that are looking to sell or divest or portfolios,” the CEO said. “I can tell you, we haven’t seen one acquisition prospect in the Florida market that looked appealing to us.
“So we’ll keep our powder dry, we’ll be opportunistic of the right transaction comes our way, until then we’re going to keep going with the organic growth because it’s accelerating and it’s far cheaper versus an acquisition.”
