A second transaction of its kind announced in the past four months provides a low-risk way for the Safeco-branded homeowners business of Liberty Mutual Holding Co. Inc. to continue its recent growth.
Safeco and Heritage Insurance Holdings Inc. revealed an agreement to facilitate the transition of certain upper-middle-market personal insurance business underwritten by American International Group Inc.'s Private Client Group beginning in the fourth quarter. The deal follows a similar March transaction that gives agents appointed with AmTrust Financial Services Inc.'s Republic General Agency the opportunity to transition personal insurance business to Safeco beginning in the third quarter.
Neither announcement revealed terms of the transactions nor the precise number of policies involved. AIG's U.S. property and casualty companies produced $1.10 billion in homeowners direct premiums written in 2019 on a total-filed basis; its Private Client Group, which will redouble its focus on the high-net-worth market, offers a range of personal insurance products written across several lines, including private-passenger auto, homeowners, personal umbrella, inland marine, personal flood and private collections coverage.
AmTrust's Republic companies led by Republic Lloyds and Republic Fire & Casualty Insurance Co. generated $69.8 million of homeowners business across Texas, New Mexico, Louisiana, Arkansas, Mississippi and Oklahoma.
The P&C subsidiaries of Safeco Corp., meanwhile, produced $2.75 billion in homeowners direct premiums written in 2019, an increase of 5.2% from the prior year. Their growth in the line came as the other U.S. P&C units of Liberty Mutual saw homeowners business volume slip 1.1% year over year. The Safeco companies' homeowners growth of 6.8% in the first quarter of 2020 represented their strongest rate of expansion in that line in any quarter in five years.
Gary Fischer, Safeco's senior vice president of independent agency channel growth and engagement, pointed to his company's "world-class book transfer capabilities" in the announcement of the AIG transaction. Select state product filings submitted by Safeco after the March announcement of the Republic deal offers a glimpse of how the process might work.
American Economy Insurance Co. referenced in a recent New Mexico filing a "guarantee" that policies acquired from another insurer, which the filing did not name, via a book transfer would reach their indicated rate at an even pace over a three-year period. The same company disclosed in a separate filing that it maintains a book transfer rate stabilization rule so as to "reduce policyholder disruption that may result from the conversion of the policy into the Safeco rating program as the result of a qualified book transfer transaction." It defined a qualified book transfer as a transaction initiated by independent agents that systematically offer customers a move from one carrier to another.
In the AmTrust transaction, Republic Underwriters Insurance Co. said in a filing that Safeco would submit an offer to the agent of record for affected policies, subject to the latter company's underwriting guidelines.
"If within its range of authorized rates, during the first year of the agreement, Safeco will also attempt to price-match affected policies that are offered replacement coverage," the filing said.
AIG's upper-middle-market business would seemingly mesh well with the Safeco Premier product that the company has been rolling out over the past two years.
Safeco Insurance Co. of Indiana pitched the product in a filing approved in 2018 as "an enhanced HO-5 policy," including coverages beyond dwellings, other structures and personal property. Safeco Premier also offers valuable articles coverage of up to $10,000 per item, 2x the limit associated with the company's other homeowners products, for furs, cameras, musical instruments, cellular phones and other electronic equipment and media.
Marketing materials indicate that the target client base for Safeco Premier includes a broad range of customers, from someone with a $3 million home to someone with a $500,000 home and other financial assets. Materials for AIG's Private Client Group program with a copyright date of 2015 report that the average policyholder had a home with a replacement cost of $2.6 million, though they noted that AIG would "consider homes $500,000 & above."
The Safeco news comes as AIG is changing the structure of the Private Client Group with the May launch of the Talbot Underwriting Ltd.-managed Syndicate 2019 at Lloyd's. The syndicate is to serve as a reinsurance vehicle for a business that has been challenged by the concentration of risks along the two U.S. coasts.
Poor underwriting results in 2017 and 2018, years characterized by significant catastrophe losses in certain coastal geographies struck by hurricanes and wildfires, led AIG to begin a remediation program as part of a broader portfolio management effort. The current U.S. P&C units of AIG achieved their lowest homeowners direct incurred loss ratio in more than 13 years in the first quarter.