Tower Hill Insurance Group (THIG) is aiming to transfer its existing $600mn Florida homeowners book to the new reciprocal insurer it has formed with capital from Gallatin Point Capital, Vantage and RenaissanceRe as it looks to continue growing the business without current surplus constraints, The Insurer can reveal.

Tower Hill Insurance

This publication revealed earlier this week that the capital providers, led by entities controlled by Gallatin Point Capital, will put the initial surplus into Tower Hill Insurance Exchange (THIE), with the vehicle’s capital base set to build up over time through annual surplus contributions made by policyholders.

Tower Hill has been working with TigerRisk Capital Markets & Advisory to put together the reciprocal insurer.

The move comes after a challenging period for homeowners insurers in the Sunshine State, with surplus erosion from weather-related losses and the impact of claims inflation from the assignment of benefits crisis and other factors that have driven a surge in litigation.

Talking to The Insurer after the reciprocal insurer formation was confirmed, THIG president Don Matz said the plan is to begin writing new business at 1 January – subject to approval from the Florida Office of Insurance Regulation.

The aim is then to roll in the existing $600mn portfolio as it renews, likely beginning in March next year, depending on timing requirements relating to renewal offers.

Tower Hill Risk Management will serve as the attorney-in-fact for THIE.

Matz said the establishment of the reciprocal exchange, which will ultimately be owned by policyholders, was the best option as a private company to keep supporting the book of business without diluting existing shareholders, going public or selling the company.

He added that the policyholder ownership may also help address the issue of spiralling litigation.

“It’s for Floridians and owned by Floridians, and offers a platform for growth. Policyholders will ultimately share in the underwriting profits through subscriber savings accounts and potentially that might make a policyholder think twice about filing a questionable claim,” Matz suggested.

He said that the company’s homeowners book has been growing significantly measured by premium volume because of increased rates achieved recently.

Don Matz PQ copy

The policy count has only gone up marginally, but under the current structure leverage ratios had reached an “uncomfortable” level.

“The reciprocal brings additional capital on day one to support the book, and the continued surplus contributions over the years by the policyholders will help the company grow. We won’t be in this position of wondering how we’ll grow surplus as a privately held company,” Matz commented.

The current plan is to wind down Tower Hill Preferred and Tower Hill Signature over time once the business has transferred, although one could potentially be deployed as a reinsurance vehicle.

The group’s AM Best-rated commercial insurance-focused carrier Tower Prime – which also writes in 17 states outside Florida – will remain separate from the reciprocal structure for now.

How a typical reciprocal exchange works

Reinsurance support

Tower Hill’s panel of reinsurers were informed of the move to transition the homeowners business to a new reciprocal exchange during the 1 June renewal cycle.

Coverage for the new vehicle has already been built into the 2021-2022 cat program. The expectation is that next year’s program will continue to be a combined structure as the book will still be transitioning, but after that would be a single placement for the reciprocal.

Matz said the “valves” controlling how much new business the insurer accepts had been “as tight as they’ve ever been” in 2021, despite high levels of potential business flow.

“A lot of those valves are closed because of capital and concentrations we don’t have the surplus to support. With more surplus we’ll have the opportunity to open some of those valves a bit,” he explained.

But he said that despite expectations that Citizens will continue to grow rapidly this year and the prospect of depopulation efforts in the future, a take-out would not be part of Tower Hill’s strategy going forward.

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