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Top-line growth continues but underwriting deteriorates for Floridians

Despite emerging pressures in the Florida homeowners' market, its quintet of publicly traded carriers continued to demonstrate strong top-line growth in third quarter earnings releases, in part driven by expansion beyond state borders.

But there was also evidence of the impact of mounting attritional losses as combined ratios deteriorated during what was another hurricane-free period for the market.

As The Insurance Insider's analysis reveals, gross written premium (GWP) surged at three of the New York-listed companies, while all five reported double-digit growth for the quarter and the first nine months of the year.

Heritage led the way as GWP soared by 72 percent to $149.0mn for the quarter, while net earned premiums (NEP) climbed 48 percent to $82.4mn.

The company's chairman and CEO Bruce Lucas highlighted continued prospects for growth, as he said the insurer had assumed 26,000 Citizens policies in the quarter. This was "significantly higher" than projected and equivalent to $55mn in annualised premium.

Meanwhile, its voluntary personal lines production delivered a further 5,600 policies in the quarter, while commercial residential production was higher than expected. This trend continued into Q4, with record production levels in October.

The company completed its acquisition of BRC Restoration Specialists in the quarter and agreed a deal to buy Hawaiian carrier Zephyr, with Lucas suggesting there would be further complementary M&A down the line.

The second-fastest growth in Q3 came from United, with GWP up 48.5 percent to $156.0mn. The insurer highlighted record new business volume in each month and over $500mn of premium in force at the end of Q3, while its numbers were also boosted by the first quarter acquisition of Family Security.

United president and CEO John Forney said organic growth and geographic diversification had been the dominant themes of the quarter, which ended with 49 percent of written premium coming from outside of the insurer's home state.

The progression towards geographical diversification is set to continue, with the company in the process of buying northeast carrier Interboro.

Fast-growing Federated National reported a 41.1 percent increase in GWP while NEP almost doubled.

Meanwhile, HCI Group and Universal saw steadier top-line growth in the period, with GWP up 22.4 percent and 13.9 percent respectively.

HCI Group said that its growth continued to be driven by Citizens depopulation, including assumptions of 36,000 policies in the quarter comprising 30,000 wind-only risks and 6,000 homeowners' multi-peril policies.

Universal - which has grown to become the second-biggest Florida homeowners' insurer by annual premium volume - highlighted its expansion outside the state.

The company said it had increased policy count by 35.6 percent outside Florida in the first nine months of 2015.

While strong top-line growth was common across the group of carriers, there was a divergence in underwriting performance, including deterioration of loss ratios for some.

United reported the highest combined ratio and the biggest points deterioration compared to the prior-year period.

The company's combined ratio deteriorated by 6.7 percentage points to 91.5 percent, including a 1.8 point increase in loss ratio and a 4.9 point rise in its expense ratio.

The latter was driven by a 45 percent increase in operating expenses, including those related to its Family Security acquisition. There were also higher policy acquisition, operating and underwriting costs - in part reflecting the surging top line at the company, which is yet to fully earn through.

There was a similar increase in combined ratio at HCI Group as the measure jumped by 6.5 percentage points to 78.6 percent.

But the majority of the deterioration was in the loss ratio rather than the expense ratio.

The loss ratio deteriorated by 5.8 points, which the company attributed to significant weather-related events, unfavourable development on older claims and higher reinsurance costs.

Western Florida suffered above-average rainfall in the quarter, while there is also evidence of an uptick in attritional losses in the state as a result of water claims that have been afflicting Citizens.

Among the other carriers, Heritage had the joint-lowest combined ratio, which dropped by 1.8 percentage points to 74.7 percent as a 3.3 points increase in the loss ratio was more than offset by a 4 point reduction in the company's expense ratio.

The average combined ratio of the group deteriorated by 2.6 points to 80.4 percent, while the loss ratio increased from 39.8 percent to 42.2 percent.

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