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Insurance reform attracting new insurers to Florida

Florida’s scary property insurance market is becoming more welcoming to new insurers thanks to recent changes in laws that are helping them financially.

Four new homeowners insurance carriers have entered the Florida market since the state passed legislation in January to lower premiums and entice new carriers to write policies.

Another three companies have applications pending with regulators to begin doing business in the state, according to the Florida Office of Insurance Regulation.

New carriers entering the market is a sign companies are finding it more attractive to do business in the Sunshine State after the Legislature expanded the Florida Hurricane Catastrophe Fund in January to give insurers cheaper reinsurance, which is insurance for insurance companies.

“We of course were looking at the special session very closely,” said Frank McCahill III, president and chief executive officer of Port St. Lucie-based Homeowners Choice Property and Casualty Insurance Company, Inc. The company is awaiting the final go-ahead to do business after receiving its operating permit March 30. While the benefit the company received from having greater access to the CAT fund helped, it wasn’t the sole reason Homeowners Choice decided to enter the market. The company had plans to offer policies long before the special session.

As a new company, Homeowners Choice was going to be able to offer lower rates because it did not have to recoup losses from the 2004 and 2005 storm years like other companies, McCahill said.

But a Catch-22 for insurers – a requirement that they pass on reinsurance savings to customers through lower rates – put a crimp in that rationale, McCahill said.

“Actually that kind of took the wind out of our sails a little bit,” McCahill said. “We felt that the rates had reached a level where it made sense to give this a go. In fact, we felt that the rates were higher than necessary, and we were planning on coming out with a new product with reduced rates anyway. Now with the special session everyone is having to reduce our rates so our competitive advantage to some degree has been eliminated.”

Homeowners Choice has about $12 million in capital and immediately plans to take 20,000 policies from Citizens Property Insurance Corp., Florida’s insurer of last resort, McCahill said. The company plans to write a total of 40,000 policies in its first year.

Bruce Howson, president of Ponte Vedra Beach-based American Keystone Insurance Co., said the CAT fund change may not immediately have much impact on the company because it will initially have a small number of policies and therefore will not qualify for as much access to the fund as larger companies.

“It depends on what your book of business looks like, how much you get out of the CAT fund,” Howson said, adding that the company plans to initially write about 3,000 policies. “We won’t have as big a book of business. For us, it’s just readjusting our reinsurance budget to whatever we get out of the CAT fund.”

John Laurie, an agent with Bradenton-based BB&T-Wyman, Green & Blalock who serves on the board of the Florida Association of Insurance Agents, said the fact new companies are entering Florida is a positive sign that aspects of the legislation have worked.

“Clearly, the expansion of the CAT fund has made an improvement in the business model to allow carriers to at least obtain the reinsurance they couldn’t get before,” Laurie said. “I honestly haven’t seen a huge influx of new companies.”

However, Laurie said existing companies, particularly domestic carriers, have benefited from the backup reinsurance that allows them to expand their policy-writing in the state.

Recent legislation also allowed private insurers to receive a match from the state to help build cash reserves for future claims, Laurie said.

Legislators set aside $250 million to provide matches of up to $25 million per company to build capital reserves.

“We’re just starting now to see the benefits of that incentive go to work,” Laurie said. “You could apply for up to $25 million. If you put up $25 million, the state would match you another $25 million.”

But the cloud to the silver lining is the fact that larger companies with deeper pockets – some with capital in the hundreds of millions of dollars – are still pulling out of Florida, Laurie said.

“We still see the big guys retracting,” Laurie said. “That’s a disappointment from the legislation. State Farm, Nationwide, Allstate, Auto Owners, those companies are still retracting.”

Ross Buchmueller, president and chief executive officer of Plantation-based PURE High Net Worth Insurance, said the law changes helped carve out a special niche for his company, which only insures homes worth $1 million or more and began writing policies Jan. 29.

One of those changes involved Citizens Property Insurance Corp., the state’s insurer of last resort, no longer being able to offer coverage on $1 million homes in order to limit risk exposure, Buchmueller said.

“The changes from Senate Bill 1980 created an attractive environment … making million-dollar homes ineligible for Citizens and creating a capital buildup incentive,” said Buchmueller, whose company has $50 million in capital. “All of that was very attractive.

“Because reinsurance is easier to get on higher-priced, better-built homes, the expansion of the CAT fund didn’t really play a part in the company deciding to start writing policies in Florida,” Buchmueller said. “I’m not suggesting it’s a bad thing, but it’s certainly not the thing that got us interested in the market.”

PURE High Net Worth has approved 200 of 1,500 qualifying applications, Buchmueller said, adding that the company will do a substantial part of its business locally.

“We love your area,” Buchmueller said. “The number of inquiries we get from Lakewood Ranch is terrific. There is a lot of construction there that is fitting our appetite.”

Copyright © 2007 The Bradenton Herald, Fla., Brian Neill. - TALLAHASSEE, Fla. – April 23, 2007

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