Florida headquartered property casualty insurer, Heritage Insurance Holdings, Inc., continues to expand and diversify outside of the highly competitive Florida market, a trend the firm’s Chairman and Chief Executive Officer (CEO), Bruce Lucas, says should reduce claim volatility as well as reinsurance pricing.
Speaking during the insurer’s second-quarter 2018 earnings call, Lucas highlighted the fact Heritage decided to de-risk from the region roughly two-and-a-half years ago, in light of the area’s growing water fraud crisis.
During this time, explained Lucas, the firm’s total insured value (TIV) in Florida has come down considerably, with the Tri-County personal line now representing just 6% of its consolidated TIV.
“Heritage is well diversified and only has approximately one-third of our total consolidated TIV in the Florida market. As we have moved away from the Tri-County, the number of newly reported claims and lawsuits have steadily declined,” said Lucas.
“Our footprint continues to expand away from Florida, which should help to reduce claims volatility and reinsurance pricing,” he added.
During the second-quarter of 2018, Heritage reduced its Tri-County TIV by 17.3%, year-over-year. As a result, the company’s open claims related to the region are at a three-year low, and the insurer continues to see a reduction in new claims and lawsuits from the region.
The expansion outside of Florida has continued for Heritage, underlined by acquisitions and new state licenses that have served to reduce the company’s TIV in Florida. The expansion, and subsequent increased diversification could have helped the firm secure what it described previously as attractive pricing for its 2018 / 2019 reinsurance program, while Lucas feels it should lower both claims volatility and reinsurance pricing.
At the same time, the continued push to grow its footprint outside of Florida has resulted in further premium growth during the second-quarter, with gross written premiums (GWP) increasing 66% to $263.6 million, while premiums in force increased by 54% to $930.5 million. Net premiums earned increased by 22% to $111 million, year-over-year, in Q2.
But despite the premium growth and additional expansion across the U.S., net income for the second-quarter of 2018 actually declined by 64%, year-over-year, to $2.4 million, which the firm attributes to a challenging quarter underlined by higher than expected non-catastrophe weather losses.
However, for the first six months of the year, Heritage’s net income is up 37%, year-over-year, to $17.3 million.
The company’s loss ratio reached 59.3% in Q2 and 54.8% for H1, 2018, compared with 50.9% and 50.8% in 2017, respectively.
Heritage attributes the increase in loss ratios to weather losses and reserve strengthening, which, combined, impacted the loss ratio for the quarter by 14 points. However, Heritage notes that this was partially offset by profitability from the use of its Contractors Alliance Network (CAN).
Lucas said during the earnings call that the firm has worked through much of the claims tail related to Florida claims that started in 2015, adding that “we believe that our loss ratios will continue to improve,” as the firm’s volume of in force Tri-County policies reduces, ultimately resulting in less volatility.
Heritage’s vertically integrated affiliate, CAN, which is now operational in the southeast and northeast, with its launch in Hawaii expected this year, enables the firm to respond to catastrophes events quickly, essentially reducing its retained losses.
Highlighting the benefits of CAN, which serves to further reduce the company’s exposure in Florida, Lucas said: “I mean, we’ve got nothing but positive feedback. CAN is going in and doing repair work at a substantial discount to what an AOB would be. And if you can get out to a claim quickly and get the customer signed up into the repair program, you’re going to save a lot money. You’re going to save a lot of AOBs and PAs and attorneys fees, and where you also see a corresponding reduction of loss adjustment expense.
“We have the lowest loss adjustment expense in Florida. We are under 10%. I had some Lloyd’s syndicates come through here the other week, I asked them what they’re saying as the average LAE ratio in Florida and it’s like 25% to 30%, so CAN saves a lot of money on these CAT costs.”
