Property Insurance: General

ATTENTION: All Florida Association of Insurance Agents
SUBJECT: Hurricane Deductibles (TS Fay)
DATE: August 19, 2008

It appears Tropical Storm (TS) Fay will not reach hurricane status. However, hurricane warnings were posted in Florida, creating confusion for some that such a warning triggers application of a “hurricane” deductible. This alert is to assist agents in communicating to carriers and others that such is not the case.

In 2001, the Department of Insurance (now the Office of Insurance Regulation) issued a bulletin, addressing this identical situation with TS Barry. Therefore, assuming TS Fay never reaches hurricane strength, resulting damage should receive application of the appropriate All Other Perils (AOP) deductible.

Note: some policies may contain a separate "windstorm" (not hurricane) deductible, in which case that deductible would apply.

The following is relevant wording from the previous DOI bulletin for TS Barry:

The Panhandle of Florida recently endured damaging wind and rain from Tropical Storm Barry. Property along the Gulf Coast of Florida bore the brunt of this Tropical Storm. All property and casualty insurers are reminded that hurricane deductibles are only applicable when a storm system has been declared a hurricane by the National Hurricane Center. Tropical Storm Barry never reached hurricane strength. Accordingly, the only deductible that will be applicable is the "all other perils" deductible.

The Department will monitor the industry's use of deductibles relative to Tropical Storm Barry to ensure compliance with the provisions of each company's policies and the Florida Insurance Code.

From the Office of Insurance Regulation

Here are two lists of new property writers in Florida since January
2006. There are primarily domestic, or Florida-based, insurers, although not exclusively.

There is some overlap of the lists, because one document covers only calendar year 2007, while the other list coverage 2006 and part of 2007.

They are available from the links below:

New Florida Property Writers Since January 1, 2007  

New Florida Property Writers, Jan. 1, 2006, through Dec. 31, 2007

In addition,  take-out company information also is available on the OIR Internet site:

Surplus lines companies' rates unregulated
Miami Herald, 8/4/2008

With two quiet years on the hurricane front, another group of insurance companies has turned to the Florida market: surplus lines companies.

The firms, many backed by deep pockets and savvy investors, are licensed by the state, but their rates aren't regulated.

Rates are usually negotiated on a per-policy basis. Many surplus lines companies will cover homes or buildings that admitted carriers won't touch, such as historic homes that may be 70 to 80 years old.

Among the companies new to Florida are two surplus carriers owned by Lancashire Holdings Ltd., a Bermuda-based insurance group: Lancashire Insurance Co. Ltd. and Lancashire Insurance UK Ltd.

Both companies, registered to sell commercial residential coverage for condo and homeowner associations in Florida, were well-funded with a total of more than $1.24 billion in surplus.

Ironhorse Insurance Ltd. was licensed to sell surplus coverage to commercial properties in Florida last year. The company,  based in Bermuda, raised nearly $1 billion to provide commercial coverage. Its initial focus has been coastal states including Georgia, the Carolinas, and the Gulf states. It's also offering earthquake insurance in California.

Sterling Capital Partners, a New York-based investment group, was the money behind AIX Specialty Insurance. The company started out with $15 million in surplus.

Miami Herald, 8/4/2008

The popular notion is that Florida's insurance market is dominated by the likes of State Farm, Allstate and Nationwide as well as Citizens Property Insurance, the state-run insurer.

But in reality, these big companies don't have the lion's share any more. More than half of the homeowners policies in this market are written by smaller Florida-based or regional insurers.

In the last 18 months, 14 new insurers have been licensed to sell homeowners coverage. The companies have started up with a total $265 million in new capital. 'THEY ARE THE FUTURE'

''These new firms are critically important to our market,'' says Sam Miller with the Florida Insurance Council, an industry group. ''They are the future.''

Many of the new companies focus on underserved niches. Some got started by taking advantage of a surplus capital build-up program the state started in 2006. Others attracted capital outside Florida, such as American Coastal Insurance, which has the backing of Branch Banking & Trust in North Carolina.

Magnolia Insurance in Key Biscayne, Landmark One in Miami and Olympus Insurance in Orlando started off by taking policies out of Citizens. For many new firms, doing takeouts is a quick and less expensive way of creating a book of business.

Modern USA Insurance in Clearwater is catering to the mobile-home market, while Privilege Underwriters Reciprocal Exchange, a White Plains, N.Y., company headed by President and CEO Ross Buchmueller, is tackling the other end of the housing spectrum -- homes valued at more than $1 million.

People's Trust Insurance, based in Boca Raton, is going the direct marketing route, selling homeowners insurance via the Web and minus the agents. American Coastal, with an office in Davie, is targeting condo associations, an area many insurers have walked away from since 2005.

The big question from consumers as well as agents is: Can these fledging firms thrive in a market that insurers with decades of experience perceive as too risky?

These smaller companies have some advantages that the big national firms already in Florida don't have, says Robert Hartwig, chief economist with the Insurance Information Institute.

''They can choose their risks. Existing companies don't have the luxury of choosing homes of a certain vintage such as newer homes -- those built after 2001 when a stricter building code was put in place,'' he says.

Years ago, national insurers sought to build market share and wrote policies aggressively. But that's left some companies with many more policies concentrated in regions of the state they would rather avoid nowadays.


The new companies have the ability to be more selective about the homes they take on and the areas of the state they choose to write policies in.

Yet, analysts worry that these new firms will grow too aggressively and not have enough capital to survive the ups and downs of this market.

The new companies don't carry a financial strength rating from A.M. Best, the Oldwick, N.J, rating agency that's best regarded for its review of insurers. A.M. Best won't rate a firm with less than five years of experience.

These firms usually have a rating from Demotech, a Chicago rating agency. Most insurers will include their financial strength rating in marketing materials and on their website.

These new firms can grow very quickly.

Consider Magnolia Insurance. It has been approved by state regulators to take up to 120,000 policies out of Citizens. If it does take the entire load, it will catapult itself from zero to among the 10 largest private insurers in the state. So far, it has taken out just over 45,000.

Magnolia is headed by H. James Irl, who used to run Florida Insurance Premium, whose license he surrendered when he began to work on forming the new firm. The $20 million start-up capital came from a $23.8 million loan from Allianz Risk Transfer, a New York subsidiary of Allianz AG, an international insurance, banking and asset management company based in Zurich.


Many of these firms have taken steps to protect their capital and minimize losses.

For instance, Wayne Fletcher, president and CEO of Northern Capital, says another company, Landmark One, was started last year in order to keep Northern Capital small so both could qualify to buy extra coverage from the Florida Hurricane Catastrophe Fund.

The reinsurance sold by the state is less expensive than that sold in the private market. All insurers working in Florida must buy reinsurance from the catastrophe fund.

Because of the slowdown in the housing market and the economy, Northern Capital, which was licensed in 2006, signed on to take policies out of Citizens to supplement the number of policies it writes directly. It got approved for 20,000 policies, but it has taken out about half of those so far.

Landmark One is only doing takeouts. It can eventually take 50,000 policies out of Citizens, but it has taken out 15,000 policies.

The $9 million used to fund Landmark One came from Northern Capital's earnings and bank financing, says Fletcher. Because both companies are privately held, Fletcher says the companies have more leeway to invest in their growth and still earn a decent return for investors.

For instance, to handle claims, Northern Capital and Landmark One created an internal claims adjusting firm and have dedicated staffers to supervise outside adjusters if they're needed after a big hurricane.

''It's expensive but it's a smart thing to do because we feel we're going to be in this business in the long run in Florida,'' says Fletcher.


Tampa-based Avatar Insurance is also being conservative about growth, says President Hitesh ''John'' Adhia.

The company's $10 million in capital would allow it to write as many as 50,000 policies. But it plans to write just about 10,000. It may take some policies out of Citizens, but for now it's writing its own policies.

Avatar can offer rates that are 10 percent to 14 percent below what Citizens offers and still be profitable, says Adhia.

The key is spreading its risk around the state. It's writing some policies in South Florida, but it won't offer windstorm coverage in the designated windpool area, which is generally east of Interstate 95.

Unlike some of the other company executives, Michael Gold, who formed People's Trust Insurance in Boca Raton in early March, is an outsider. He had sold a manufacturing business and retired to Florida, where the high cost of insurance for his new home got him thinking that there could be a better way to offer the required coverage.

People's Trust borrowed a page from the auto insurers. It sells directly to consumers via the Internet using no agents. In about 15 minutes, a homeowner answers a series of questions and gets an answer on whether People's Trust will write a policy.

So far, the company has sold about 5,000 policies. But diversification is still the goal.

''The homes we insure are spread very evenly across the state. It's very unlikely that we could have a storm that would pierce all our risks,'' Gold adds.

He and his staff are ready to duke it out with other carriers, hoping the company's less traditional approach will benefit policyholders as well as the firm.


Gold's come-from-the-outside mentality also has the company handling claims differently. People's Trust has contracted with various home builders and construction companies to handle the repair work when a claim is handled.

If a homeowner accepts the amount of money offered to settle a claim, they can choose from the company's list of approved contractors to do the work. Contractors are paid after the work is completed to the owners' satisfaction.

That way, says Gold, they know the work is done correctly.

American Coastal is looking to thrive by covering property that other insurers have turned their backs on. The company isn't taking on the luxury high-rises, but rather garden-style communities with multiple smaller buildings.

As it is now, only one or two insurers are willing to take on the luxury condo towers, so many condo associations end up with policies from the state-run company.

''If we didn't have these smaller companies, we'd be in a whole lot of trouble, because Citizens would be a lot bigger than it is,'' says Hartwig.

Though analysts and agents agree these new firms are targeting ignored sectors of the market, they also know these firms are young and inexperienced.

Says Jeff Grady, president of Florida Association of Insurance Agents: ''They're untested when it comes to handling a major hurricane.''More than half of homeowners policies are written by smaller insurers based in the state or region. Many serve niches, like mobile homes or multimillion-dollar residences.


Office of Insurance Regulation property insurers rankings by number of policies, structure exposure and written premium. Citizens Property Insurance Corporation is number 1, followed by State Farm. Figures as of March 31, 2008.

Top 200 Property Writers; Citizens Biggest