Withone of its primary markets facing economic and political challenges, Charleston,W.Va.-based BrickStreet Mutual InsuranceCo. continues to broaden its footprint through organic means and, byvirtue of a multifaceted transaction announcedJuly 11 by which it will acquire a block of business currently underwritten by propertyand casualty units of HM InsuranceGroup Inc., deal activity.
BrickStreetCEO Gregory Burton said the deal includes three components: A loss portfolio transferthat took effect July 1; the acquisition of the renewal rights to the Highmark workers'comp business on Aug. 1, and the purchase of a distinct legal entity; and , that willclose on or around Oct. 1, subject to regulatory approval.
The dealwill allow BrickStreet to further diversify a business that has historically beenconcentrated in West Virginia with a focus on the coal industry.
"Coalhas been very profitable for us for a number of years, but that market continuesto shrink," Burton said.
BrickStreet,which had been created to privatize the West Virginia workers' compensation market,generated more than 90% of its total-filed direct premiums written from its homestate on a calendar-year basis as recently as 2010 and, from a quarterly perspective,in the third quarter of 2010. The insurer and its subsidiaries began obtaining licensesin other states in 2009 and broadening their footprint such that West Virginia accountedfor only 57.6% of group-level direct premiums written in calendar year 2015.
The group,which consists of the combination of BrickStreet, NorthStone Insurance Co., SummitPoint Insurance Co. and PinnaclePoint Insurance Co., generated at least some businessfrom 12 states and the District of Columbia during the first quarter of 2016. Itspremium volume for that period exceeded $1 million in Illinois, Indiana, Kentucky,North Carolina, Virginia, West Virginia and Pennsylvania. The latter state is whereHighmark Casualty Insurance Co.and HM Casualty generated 99% of their combined 2015 workers' comp direct premiumswritten of $120.9 million.
The groupalso disclosed plans to enter three new states during 2016 and 2017: Georgia, Iowaand Kansas. It submitted an initial form/rate/rulefiling in Iowa and received approval to start writing new business,effective July 1.
BrickStreetacquired PennCommonwealthCasualty of America Corp., a monoline Pennsylvania workers' comp writer, in a March2012 transaction valued at $825,000 that gave the group entry to the Keystone State.The deal's target was subsequently renamed NorthStone. Pennsylvaniaaccounted for approximately 7.3% of the BrickStreet group's total-filed direct premiumswritten for the trailing-12-month period ended March 31.
But whilethe reach of BrickStreet's business has expanded, the top line of its income statementhas come under pressure. The group's net premiums earned plunged by 18% in 2015,reflective of declines in net premiums written of 5.4% in 2014 and 15.6% in 2015.Its West Virginia direct premiums written have declined at varying rates in eachof the past seven years, falling to $150.8 million in 2015 from more than doublethat amount as recently as 2009. And while its non-West Virginia business had expandedrapidly from 2008 through 2013, the dollar value of its premium volume in thosemarkets held steady in 2014 then tumbled by 15.4% in 2015, driven by declines inKentucky and Virginia direct premiums written of 53.1% and 31.6%, respectively.
The groupattributed $18 millionof its $59 million year-over-year decline in total-filed net premiums earned tothe effect of an adverse development cover pertaining to claims covered under theFederal Coal Mine Health and Safety Act. The majority, however, resulted from lowerpremium volume resulting from the "significant economic downturn in the coalindustry and related businesses" and certain other factors.
Despitelower premium volume, BrickStreet has continued to generate considerable net incomeand growth in policyholders' surplus. Its combined ratio held steady in 2015 atjust under 101%.
S&PGlobal Market Intelligence calculates that the Highmark workers' comp business ranat a combined ratio in excess of 105% in each of the last three years. The 2015result of 107.8% for that business marked improvement, however, from just over 114%in 2014.
Burtonsaid BrickStreet plans to "take a look" at the Highmark book to "seewhere our expenses come in," and he sees some opportunities for synergies inareas such as shared services.
In additionto the benefits of geographic expansion, Burton said that the book provides diversityby classification in that it includes business that is lower hazard in nature relativeto what BrickStreet typically writes.