A relatively new St. Petersburg-based insurance company with a few deep Tallahassee ties was given the go-ahead on the eve of the 2013 hurricane season to be paid to acquire policies from Citizens Property Insurance Corp.
The Citizens board Wednesday narrowly gave approval for Heritage Property & Casualty Insurance Co. to take out up to 60,000 policies from among Citizens' less-risky personal lines accounts and coastal accounts, with the company getting up to $52 million from the state-backed agency.
The deal follows the February approval for Weston Insurance to take out a little more than 30,000 wind-only policies for up to $63 million from Citizens.
Usually takeouts, approved by the Florida Office of Insurance Regulation, occur in November and December. But because the takeouts are coming closer to the June 1 start of hurricane season, the financial packages were included and Citizens board approval was required.
The money is intended to provide coverage for the companies as they have not been able to build reserves through months of premiums collected on the policies.
"It's an appropriate use of our capital in order to facilitate takeouts, in my opinion," said Citizens Chairman Carlos Lacasa, who was joined in supporting the Heritage deal by board members Juan Cocuy and John Wortman.
Other board members questioned the need for the deal, with Gov. Rick Scott expected soon to receive legislation (SB 1770) that would create a clearinghouse for the purpose of shifting the least-risky Citizens policies into private insurers' hands. They also pointed to recent efforts to improve the public image of the agency through new internal management and reduced travel spending limits.
"We're giving up a lot of surplus that could be used in the event of a storm," said board member Carol Everhart, who along with board member Don Glisson voted against the deal. "We need to get public trust on Citizens' side again, and this I believe is not going to help us."
Board member Tom Lynch, who abstained from the vote, said the deal appears rushed, will have an appearance of lacking transparency and should have gone before the agency's Depopulation Committee.
"I have no problem with Heritage, but we're not using methodology we have put in place," Lynch said.
Lacasa said he decided to hold the vote on Wednesday because time is expiring for the takeout to occur before filings are required by companies to the state's Hurricane Catastrophe Fund.
The policies transfer process is to formally occur by June 28. The deadline for the cat fund, which provides reinsurance to carriers, is June 30.
Under the terms of the deal, Heritage is limited in how much it can raise rates on the new policies for three years. It cannot exceed 10 percent annual increases that apply to existing Citizens policies. Heritage must also increase its own assets by $10 million, to $110 million.
OIR issued a consent order for the depopulation deal on May 17.
Licensed last August, Heritage was approved for a takeout of personal lines accounts last November.
Calling the latest deal "unique," Citizens President and CEO Barry Gilway praised Heritage for taking on the additional policies eight days before the start of the hurricane season.
"You will find a strong company with exceptional management and an exceptional business plan," Gilway said.
Heritage is currently unrated by A.M. Best but holds a Financial Stability Rating of 'A' from another agency, Demotech.
The company contributed $100,000 on March 5 and $10,000 on March 18 to the Lets Get to Work political committee behind Gov. Rick Scott's re-election effort.
Heritage also spent between $50,000 and $120,000 since being formed to lobby state lawmakers and the executive branch. The company employed members of the firm Colodny, Fass, Talenfeld, Karlinsky, Abate & Webb for its lobbying, including former state Insurance Commissioner Tom Gallagher.
"Not a single solitary member of the Legislature or the executive branch contacted me in any way, asked me to act on this," Lacasa said.
Scott's office has taken exception to media portrayals that Heritage is receiving a special deal or that the political contributions have dictated Citizens' actions.
"It is the responsibility of the Citizens board to act in the best interest of their policyholders," Scott's spokeswoman Melissa Sellers said in a release. "We expect them to approve or disapprove of this risk transfer based solely on its merits. Anything short of that would harm Citizens policyholders and Florida residents who back Citizens policies. We have not, nor will we, direct them to act one way or another as they seek to protect Florida taxpayers.
The policy removal is expected to remove about $14 billion in exposure from Citizens, decreasing the state-backed agency's probable maximum loss in a one-in-100-year storm event by about $280 million.
Heritage is one of 11 firms since last September to be approved by OIR to remove more than 200,000 policies from the state-backed agency.
Heritage picked up 42,722 Citizens policies in December, 6,646 in January and 4,931 in March. As of April 30, Citizens had about 1.276 million policies.
