HCI could raise close to $90m to fund more Florida Citizens takeouts

Florida-focused insurance holding entity HCI Group is aiming to raise close to $90 million through a public offering of its equity, with the target being to put the money raised to work to fund the continued assumption of policies from the state’s insurer of last resort, Florida Citizens.

HCI Group has been proactively growing out its Florida property insurance market business this year, with initiatives such as the launch of a new Florida domestic carrier focused on the multi-peril homeowners line of insurance business, Tailrow Insurance Company.

Tailrow will write new Florida insurance business alongside HCI’s other insurance holdings, the already Florida licensed insurer Homeowners Choice, insurtech property and flood insurance specialist TypTap, and reinsurance focused unit Claddaugh.

But, this year, HCI Group has likely had as much success in securing new insurance business through the depopulation program of Citizens Property Insurance Corporation, the Florida state property insurer of last resort.

HCI has already been active, in taking out policies from Citizens under Florida’s legislatively mandated depopulation program this year.

The firm’s insurtech TypTap was approved to takeout up to 25,000 policies from Citizens, while subsidiary Homeowners Choice Property & Casualty Insurance Company completed a successful takeout of approximately 53,750 policies from Citizens last month.

It appears that HCI Group sees the takeout as an opportunity, as its risk appetite is still elevated for more Florida property insurance policies from Citizens.

To fund additional Citizens policy takeouts, HCI has launched an underwritten public offering of 1,000,000 shares of its common stock, with the underwriters expected to be granted a 30-day option to purchase up to an additional 150,000 shares of its common stock at the same public offering price.

So, that means 1.15 million shares could be sold by HCI Group, if the underwriters take up their full allotment.

The offering has now been priced, at a public offering price of $78 per share, meaning $78 million will be raised from the main public offering and a further $11.7 million from the sale of shares to the underwriters, for a total of $89.7 million of proceeds to HCI.

As well as the typical “general corporate purposes” that HCI cites the proceeds could be used for, it also states “continued assumption of policies from Citizens Property Insurance Corporation,” is another area the funding can be put to work.

Which demonstrates that we are now at the stage of the cycle where, for those able to bear the risk, raising funds to pay what is required to get allocated more Citizens policies from the depopulation program is deemed attractive, suggesting more firms could put money to work to secure policies in this way.

It’s an efficient way to originate risk, given policies from Citizens can be considered seasoned, to a degree, while they do not have to be sourced via an agency relationship and so commissions are not applied in the typical way.

For those hungry to grow out portfolios of Florida property insurance business, the Citizens depopulation is an attractive opportunity, to source risk perhaps at lower-cost than can be achieved in any other way.

However, it’s worth highlighting that this week there was another signal of a reduced appetite for Florida risk from the US’ major carriers.

A senior Allstate executive said at a conference that his firm was more likely to shrink further in Florida, before it starts to grow again there, legislative change or not. Showing that not everyone has an appetite to grow back into the sunshine state, yet.

Read all of our news and analysis on the Florida insurance and reinsurance market.