In early 2021, former executives with the Auto Club Insurance Co. of Florida, affiliated with AAA, decided to form a new property insurance company in Florida — even before state lawmakers made monumental changes that curbed claims litigation and costs. Since then, Tampa-based Loggerhead Reciprocal Interinsurance Exchange has grown to more than 20,000 policies in force, through new business and assumption of policies from the state-created Citizens Property Insurance Corp. and from Bankers Insurance Co., which ceased writing homeowner policies in Florida in 2022.

In the next few months, Loggerhead is poised to jump into the ranks of the top 10 carriers in Florida after it assumes more than 100,000 HO and DP policies from Progressive, which announced in September 2023 it was nonrenewing many of its residential policies in the state.

Carrier Management’s sister publication Insurance Journal spoke with Loggerhead Co-founder and CEO Jim Santo about how Loggerhead came to assume the large book of business from Progressive and how it has benefited from a calmer, less-litigious Florida market. The conversation has been lightly edited for clarity and brevity.

Tell us about the Progressive deal and what it means for policyholders and agents.

The deal was announced in late September. Progressive is nonrenewing 115,000 customers. And really, how many we end up with depends on two things: 1.) how many agencies want to participate in the replacement policy offering and 2.) how many customers convert or take up.

So, not all agencies have opted in at this point. And we have yet to see how many customers opt in once they get their offers. Our plans are to make offers on all the policies, for agencies that opt in. We’re not going to make an offer if the agency doesn’t opt in, because we won’t have a contract with them.

There’s one exception to that: high-value homes. I’m talking $3 million-plus, coverage A. That’s maybe 40 to 50 policies out of 115,000. So, essentially, we’re making replacement policy offerings to all of them.

You’re talking about Progressive-appointed agencies?

Yes. I would say that for 200 to 300 of the agencies, we already have a relationship with them. The others have to make a decision on whether they want to sign an agreement with us. And I expect most, if not all, of them to do that. Loggerhead had done a similar agreement with Bankers Insurance. So, we’re nine months into a 12-month process of providing replacement policy offerings to Bankers’ customers.

Bankers in early 2022 announced that it was exiting the Florida personal lines market, and that was 20,000 offers. We only had one agency opt out of that. So, it’s going to be really small, the opt-outs. But we do expect a couple of agencies to opt out.

On those Bankers’ policies, can you say how many offers were accepted by policyholders?

We’re currently converting about 60 percent. Again, we made offers to 100 percent.

With Progressive, we expect the take-up rate to be much higher. We feel Progressive has appropriate premiums. So, customers are not going to see increases like they did with the Bankers one, so we should see a higher take-up rate.

From my seat, I would have liked it to have been higher with Bankers, but I understand how things shake out. And Bankers had done a lot of re-underwriting. So, if there is a segment of the market that there is capacity for, it’s good quality business with a newer roof on it. And that’s what that book was. So, there were some options for those folks.

On the Progressive policies, can you say what the average premium increase might be? Loggerhead’s rate stabilization plan indicates rates will remain roughly the same for at least three years.

We’re going to price match. As long as you’re plus or minus 40 percent to our premium, we’re going to match the expiring premiums. So, most people will be pretty close to what they’re paying.

Do you expect the premium to increase next year?

In total, we think they [Progressive premiums] are price-adequate. Now, policy by policy, some will come up, some will come down. Basically, the way our rate stabilization works is over three years, you navigate to our premiums. By year three, you’re no longer compared back to your Progressive premium. It’s the Loggerhead premium, the rates that we file with the state. It’s a trend over time to smooth people up or down to where they should be.

Can you say how this deal with Progressive came about? A couple of years ago, Slide Insurance and Florida regulators created some controversy when Slide was allowed to take thousands of St. Johns Insurance and United Property & Casualty Insurance policies.

We have a really good working relationship with the Progressive team, the former American Strategic team, which is right across the bridge from us in St. Pete. (Progressive Corp. owns the parent company of ASI, American Strategic Insurance Corp.) We were fully aware of how the Progressive home office would talk about Florida and the need to rebalance. And that’s the key word that they used in all of their communications with media – a rebalancing. And they wanted to partner with a company that they knew would handle it the right way. And they were familiar with us.

Most of us are former colleagues at AAA. Customer service is a hallmark of our company. So, they knew we would treat the agents the right way and the customers the right way. So, we got to talking to them, and knew there was going to be a need for nonrenewals. This started a while ago. It got hung up in a (hurricane) moratorium where you couldn’t nonrenew policies. Then they were getting a rate increase. Then finally the decks cleared so that they could move forward with their rebalancing efforts, and we were able to step in and provide this capacity to the policyholders and agencies out there.

Have you heard any complaints from other carriers who may have wanted to take on these Progressive policies?

No complaints. I think there are a few who wish they’d been able to partner. They’ve approached some of the agencies to try and get them to convert, but our process is as seamless as it can be. If you think about a customer, they have to go out and find replacement coverage. They have to call their agent or call companies directly and provide all of their policyholder data and property data. We already have that because we had a data transfer. So, we’re able to provide them a firm offer price and they can just go in and pay. We’ve already underwritten them, so they qualify. They’re not going to go through 15 minutes on the phone and find out they’re not eligible. And we’re not requiring them to go out and get new inspections, so they’re saving money on that. Most companies would require new inspection reports.

At 120 days out (near the end of January), Progressive sends their nonrenewal, and that will explain about Loggerhead and that we will be making an offer of coverage. Then 90 days out, they will get our offer of coverage, showing them the policy information and the price. They go into our customer portal or website, register their account, and review their policy.

Did the Florida Office of Insurance Regulation have to approve?

We worked jointly with Progressive and OIR. Progressive worked closely with them, given the sensitivity to what they were doing. There’s no formal approval or consent order. It was all just discussions and meetings with OIR.

Why are these policies more attractive to you guys than they were to Progressive? I mean, how is it projected to be profitable for Loggerhead, but not Progressive, to hold on to these policies?

Florida represents 6.5 percent of all single-family dwellings in the U.S., but more than 17 percent of all homes insured by Progressive Home are in Florida, thus the rebalancing. It should not be thought of as nonrenewing bad business or unprofitable business. As it relates to DP-3, they are exiting this product and decided to insure only owner-occupied homes.

Socotra, an InsurTech firm, put out a news release about this. What does Socotra do for Loggerhead?

Socotra is our billing and policy management platform. We partnered with them in summer 2022. With them, our team and Ernst & Young consultants, we stood up our HO-3 product and that put us in a position to do the Bankers policy offers and enabled us to do a small Citizens takeout. And in May of 2023 we began selling new business through independent agencies. The Progressive deal is for the HO-3, single-family residential policies, and DP-3, the rental dwelling policies. So, we’re partnering with Socotra to build out the DP-3. And since the Sept. 29 announcement, we’re going to have that built, to start sending offers out in February. They’ve been a good partner for us.

I know reciprocals seem to be popular these days. Have you had any push-back on that? Do agents or policyholders question that approach?

No. Agents are really quite familiar with that model now. A lot of that groundwork was done ahead of us. We were prepared to have informational pieces and FAQs, but we really didn’t need to do that. Agents are handling it, and our customer service team is equipped to walk through with customers on what the attorney-in-fact does and why they sign a subscriber agreement.

Why go the reciprocal route instead of more customary carrier business models?

The technical, industry answer is that it truly is a more efficient capital play for an investor. The other pitch is that there are no shareholders. The policyholders own the company. There are no dividends to shareholders. The results of the company will dictate the premiums that people pay.

How many policies in force does Loggerhead have now?

Between the assumed Bankers, Citizens and all the converted policies, at year’s end we were at 21,000 policies.

So, if you get, say, 100,000 in Progressive policies, that will really put you up there in size for Florida carriers.

Yes. It’s a big deal.

Can you talk about your capital investment, where your funding comes from?

Sure. We have a $30 million surplus note that launched the company. Our sole and lead investor is Francis Chou, an asset manager. He owns Chou Associates and runs about five mutual funds. He has an insurance background and owns a workers comp insurance company called Stonetrust Commercial, based in Baton Rouge, La. Going forward, he’ll be able to provide us additional funds in the form of a surplus note. And we’re also going to utilize quota-share reinsurance to support the Progressive book of business.

How are things in Florida after the legislative reforms in the last few years?

We benefited from the reforms because everything we have is after that. Given our backgrounds, we operated in the environment of assignments of benefits and attorney representation and litigation. We feel like we had some operational advantages in avoiding some of that, but you can’t avoid it all. We were prepared to enter the market with or without the reforms, but obviously with those, things have gone well.

The frustration for folks is that premiums have continued to rise (after the reforms were enacted). When the reforms were made, most companies were rate-inadequate or underpriced, so they still needed to catch up. They just didn’t need to catch up as much, after the reforms. Nobody likes to hear that message, though: “Well, your premiums didn’t increase as much as they would have.” So, that’s the frustration from the legislature and those who say, “My premiums still went up.” So, you have to balance that. But if everyone had been priced where they needed to be, then I think, yeah, there would have been rate decreases. Reinsurance costs continued to increase and that had nothing to do with the reforms.

This year, the Jan. 1 (reinsurance renewal) news was that things have stabilized. So, hopefully on June 1, when all the Florida companies go out and get their reinsurance, there won’t be further rate increases. I don’t think the legislature’s going to do anything on that, but if there’s any one thing they could do, it would be to provide additional capacity through the Florida Hurricane Catastrophe Fund, particularly at lower retention levels. That would be a true premium savings that could be passed on to customers.

This article was originally published on Insurance Journal. Reporter Will Rabb is the Southeast editor of Insurance Journal.

Correction: An earlier version of this article incorrectly referred to the status of Bankers Insurance Co. Bankers withdrew from the Florida homeowners insurance market in 2022 but maintains its licenses in 49 states and continues as a commercial specialty carrier in the Southeast.