Hines-led ACRE looking to raise $45mn for Florida reciprocal exchange
Industry veteran John Hines is leading what has been described as a seasoned team looking to engage with potential investors to raise around $45mn to launch a reciprocal exchange to write Florida homeowners business, The Insurer can reveal.
In a statement confirming the move, Hines, who is co-founder, president and CEO of ACRE, said the start-up is welcoming inquiries from “qualified investors and their representatives” in relation to the initial capital raise for the proposed reciprocal exchange.
“As a start-up and with recent legislative changes, improvements in product, pricing and claims management, ACRE Insurance will have none of the legacy issues facing existing carriers and can focus on building a financially strong and resilient company,” he stated.
Hines added that the start-up is led by founders who are seasoned cat-exposed property insurance executives who have worked together in the past, while the business is assembling a “highly talented and experienced” management team.
The initiative comes at a time of meaningful change in the Florida homeowners market, with capital that has sat on the sidelines beginning to show interest after potentially game-changing reforms that are expected to improve the operating environment for insurers.
Reinsurer appetite also looks to have returned to the market, with the 1 June renewals proving to be much smoother than expected as several major players leaned in and increased their participation, attracted by another round of significant rate increases and the promise of a better outlook in the state.
The belief that legislative reforms to tackle runaway litigation will be effective and start earning into carrier results is supporting a growing consensus that reinsurance hardening has peaked, with conditions for buyers set to ease next year.
Hines wouldn’t confirm details of the start-up’s business plan, but it is expected to include an emphasis on the effective use of meaningful data and analytics to support underwriting and risk selection, combined with claims management processes aimed at reducing loss severity.
The start-up – if successfully launched – is expected to consider selective takeouts from the state-backed insurer Citizens as it builds its portfolio.
It is also expected to look to secure a rating, likely from Demotech.
Reciprocal benefits
As previously reported, a start-up reciprocal exchange is initially capitalised by surplus notes from investors.
But over time it is intended to become self-supporting, as policyholders – members who effectively own the exchange – contribute to surplus, usually at 10 percent of their premium for the first five years as insureds.
The underwriting and other functions of managing the book of business written by the reciprocal exchange are handled by a so-called attorney-in-fact (AIF), which charges a fixed fee to the exchange based on a percentage of premium written.
This creates a different dynamic around valuation, with investors that provide the surplus notes to launch the vehicle typically also investing in the AIF, which is valued as a fee business at a multiple of Ebitda rather than book value as a carrier would be.
For members of the reciprocal exchange there can also be benefits, with more stability around rates in a Florida market where there have been dramatically higher rate filings from many of the domestic stock companies operating in the Sunshine State.