Commercial lines insurance holding company, United Insurance Holdings Corp., has reached an agreement in principle to transfer its personal lines business in the states of Georgia, North Carolina, and South Carolina to insurtech company HCI Group.
The business being acquired by HCI represents approximately $90 million of annual premiums.
Under the terms of the arrangement, HCI will provide 85% quota-share reinsurance on the in-force, new and renewal policies of United Property and Casualty Insurance Company (UPC) in the three states for the period December 31st, 2021 through May 31st, 2022.
During this period, it’s expected that UPC’s existing 15% quota-share reinsurance agreement with another reinsurer will remain in place.
The new agreement with UPC sees HCI pay a provisional ceding commission of 25% of premium earned during the term of the contract that could rise to 32% depending on the direct loss ratio results of the reinsured business.
The estimated ceded earned premium for the quota share period is $33.3 million, which is 85% of $39.2 million. This results in estimated net ceding commissions to UPC of between $8.3 million and $10.6 million. Additionally, HCI will pay UPC a catastrophe allowance equal to 9% of premium earned estimated at $3 million for the quota-share period.
This transaction also see UPC grant HCI renewal rights in respect of its personal lines business in Georgia, North Carolina, and South Carolina.
Consideration for renewal rights includes an up-front cash payment to UPC of $3.8 million which will be adjusted based on the amount of premium transitioned to HCI, subject to a maximum of $6 million.
Also, UPC will agree not to compete with HCI for the issuance of personal lines homeowners business in the three states until July 1st, 2025.
For UPC, the transaction enables 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.
HCI Group Chairman and Chief Executive Officer (CEO), Paresh Patel, commented: “This transaction offers another great opportunity for HCI.
“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.”