Speaking during the firm’s fourth-quarter 2017 earnings call, Chairman and Chief Executive Officer (CEO) of Heritage Insurance Holdings, Inc., Bruce Lucas, highlighted the Floridian carrier’s unique position in the market that has seen its reinsurers offer flat rates for hundreds of millions of dollars of limit.
After the devastating impacts of third and fourth quarter 2017 catastrophe events, much anticipated rate increases were evident in the reinsurance industry at the key, January 1st, 2018 renewals.
Reinsurers have been pushing for rate increases after years of falling prices and the subsequent softened market landscape, and while the Heritage CEO does think reinsurance rates are moving higher, he explained that there are “several things that are unique to Heritage that are driving lower rate increases” than he would expect in the Florida market.
“The first is, we have a massive amount of multiyear reinsurance at prior-year prices, and so that is helping us to fill capacity needs at much lower rates-on-line. Our hedging strategy that we put in place four years ago is working extremely well now that we’ve had an event.
“I’ll also comment that our loss adjustment expenses on Hurricane Matthew, they are right at the bottom of the market, and in fact, they are extremely low. They are about half of what we’re seeing from our Florida counterparts,” explained Lucas.
The Heritage CEO continued to note that the firm saved its reinsurance partners “tens and tens of millions of dollars” in loss adjustment expenses, something its reinsurers have taken into account when pricing and underwriting the company’s programme.
“Indeed, we’ve already had line quotes, I mean big ones, hundreds of millions at flat pricing. And so, we are optimistic that we’re going to be able to control our reinsurance pricing better than our Florida peers because we have reinsurance synergies, lowest LAE that I’m aware of in the Florida market, and we have multiyear reinsurance treaties in place. This really improves the outlook as we move forward,” said Lucas.
After the impacts of Hurricane Harvey on Texas, this is where many of the loss adjusters were located when Hurricane Irma struck Florida, meaning that Floridian insurers needed to raise the day-rates they paid to loss adjusters to get enough resource.
As a result, what would typically be less than 10% in loss adjustment expenses has been cited as high as 30% for some carriers, ultimately adding to claims inflation from hurricane Irma.
From what Lucas said, Heritage clearly helped to mitigate its LAE, likely through its own claims assessment set-up that results in a need to hire less external loss adjusters than others in the Florida market, which in turn meant reinsurers were willing to offer flat rates, as they essentially saved on Hurricane Irma claims when compared to other Floridian domestic insurers.
It’s also possible that the experience of Hurricane Matthew and how the firm managed its claims, as noted by Lucas, may have given reinsurers increased confidence in the firm.
Heritage tends to send out its own claims assessors or investigation team rapidly after claims are first made, helping to reduce the chances of additional inflation, as well as lowering assignment of benefit risks, something reinsurers appreciate and may be willing to offer better terms as a result of.