Coral in the News Here Comes The Little Guys

CORAL IN THE NEWS

HERE COME THE LITTLE GUYS

By Tom Zucco
November 25, 2007
Here Come The Little Guys

Lesser-known insurers bet the house on the idea that selectivity and patience will bring success. As traditional property insurance giants like Allstate, Nationwide and State Farm thin their ranks in Florida, small, nimble carriers with unfamiliar names -Coral, Edison, PURE, American Integrity and others - are stepping in to fill at least part of the void. - Some of the new companies write only homes built to post-Hurricane Andrew building codes. Some write only homes valued at $1- million or more. Some prefer to take policies from state-run Citizens Property Insurance. Others write a mix of all three. - Here's what they have in common: a view that Florida is not the worst place on earth to do business, despite the triple threat of hurricanes, reinsurance costs and regulatory crackdowns. - They also have an edge. Most of the new companies are not joined at the hip to a rating service like A.M. Best. And most are not publicly traded. They answer to a relatively small group of investors, which often means the companies can be more patient and selective than a larger carrier. - We asked seven of those companies, including several based in the Tampa Bay area, how they survive in this brave, new insurance world.

Edison Insurance

The 40 investors who originally got together in spring 2005 were still there a year later. That's important, because what happened in between was the most active North Atlantic hurricane season on record.

"Between (hurricanes) Katrina and Wilma, not a single investor bailed out," said Edison chief executive David Howard. "They understood the risk."

Like most other smaller companies, Howard said, Edison is careful in its underwriting, but in the market for the long term. The St. Petersburg company writes policies for homes of all ages, with most of its business in southwest and southeast Florida. It hopes to have about 21,000 policies at year's end.

Citizens takeouts are also not on the Edison menu.

"We wanted to make sure every risk we took we underwrote to a sound degree," Howard said. "We knew it was a good risk. When you do a takeout, you get what you get."

HomeWise

Founded two years ago, HomeWise, of Tampa, insures about 30,000 homes, mostly in South Florida. But its book will soon more than double when it adds 34,000 Citizens policies.

Wholly owned by a private equity firm (Dallas-based HBK Capital Management), the company intends to expand to Central Florida and is adding about 200 homeowner policies a day.

"It is a competitive market for smaller, aggressive companies," said Bill Sparkes, HomeWise's chief operating officer. "There are people out there trying to write business. So we don't go into rate meetings saying, 'Gee, we can charge anything we want."'

American Strategic Insurance

Unlike the others, American Strategic may have hit a wall, at least temporarily. Soaring reinsurance costs have forced the company to put the brakes on its Florida growth.

"We depend on reinsurance and its cost," said John Auer, CEO of American Strategic in St. Petersburg. "In 2006, we had to beg and plead to get the whole reinsurance program placed. We decided we've grown to a good size, among the top 10 property insurers in the state. We're concentrating now on growing in Colorado, Texas and Arizona, and balance it to where we're not all dependent on Florida.

"Size can become a problem. If legislation changes in the future, if Citizens and the CAT (catastrophe) Fund are reduced, it might lead us to reconsider."

The company has 253,000 polices in Florida, most of them including wind coverage, and none of them are from Citizens.

Auer, who also serves on the advisory council for the Florida Hurricane Catastrophe Fund, the state-backed reinsurance fund, sees more smaller companies entering the market. "It's apparent the large companies don't want huge catastrophic risk."

PURE Risk Management

PURE, which stands for Privilege Underwriters Reciprocal Exchange, is a mutual company based in Plantation that won approval from the state in January to sell insurance.

Formed by three former executives with AIG Private Client Group with a $17-million matching grant from the state, the company targets a specific market: homes that cost more than $1-million to rebuild and are built to the strongest building codes. Clients pay a one-time membership fee amounting to half their annual premium for a stake in the company.

PURE chief executive Ross Buchmueller said he drew heavily from USAA's business model and that PURE's book of business is spread widely across the state. The company uses independent agents and doesn't take policies out of Citizens. Most of the homes it writes had been insured by a surplus lines carrier.

Buchmueller said one of the keys for his company is a lack of history. PURE started with no policies and did not assume anyone else's business.

"If you have a clean slate," Buchmueller said. "That's a huge advantage."

He believes smaller companies can succeed in Florida, "but the larger companies that are more diverse, that have more resources, can over time provide more stability. The question that is unanswered is how to create an environment in which large companies want to commit capital."

Coral Insurance

Coral, a 3-year-old insurer based in Hollywood, has more than 12,600 policies on its books, mostly in South Florida. The insurer prefers to write policies for what it calls "the golden oldies," older homes that are updated and have the latest in hurricane protection.

"We want to write more older homes because we think they're better constructed," said Coral CEO Robert Meyers.

The company doesn't take out Citizens policies, but instead directly competes with the state's largest insurer. That presents a challenge because Citizens' rates have been frozen until 2009.

"At some point, Citizens has to decide whether it is a market of first choice or last resort," Meyers said. "Right now it's in state of flux. Will it be Citizens or opportunistic players who come in to gobble the market? Or will rates begin to stabilize so that it becomes a fair fight?

"Domestic (companies) don't have the same latitude as State Farm, Allstate and the other national companies," Meyers added. "We have nowhere else to go."

American Integrity Insurance Company of Florida and Florida Peninsula

Of the 131,000 policies taken out of Citizens in the first eight months of this year, these two companies accounted for 113,000. They plan to take out about 35,000 more, using a mix of investor and state matching funds.

Lisa Miller, a spokeswoman for the companies, compared the firms - American Integrity in Tampa and Florida Peninsula in Boca Raton - to the inventor of Crocs shoes.

"A woman working out of her garage ends up making millions, compared to other large shoe companies that are struggling," Miller said. "The larger companies have a bureaucracy of their own, and smaller companies are able to adapt more quickly."

She said Citizens was targeted because unlike private companies, Citizens has an infrastructure for acquisition.

"But companies still have to earn the business the old-fashioned way," she said. "We have to be competitive from a rate standpoint and a service standpoint. If you don't, you're not going to stay in this business very long."

Tom Zucco can be reached at zucco@sptimes.com or (727) 893-8247.

Credit: SMALL PROPERTY INSURERS; Times Staff Writer