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Universal Group readies manifold move

Insurance company preparing preferred-stock offering, expanding presence in Florida and Puerto Rico markets

BY JOSE JULIO BALMACEDA of Caribbean Business

June 17, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

To back an ambitious expansion strategy and strengthen the mounting growth of Universal Insurance of North America, sources tell CARIBBEAN BUSINESS Universal Group (UG) is preparing to unveil a multimillion-dollar preferred-stock offering, which would explain its recent activities before prominent ratings agencies.

Luis Miranda Casañas, UG’s president & CEO, would neither confirm nor deny this imminent transaction, although he admitted, "we began seeking Standard & Poor’s (S&P) [stock] classification about four months ago, and we trust this process will conclude in about six weeks."

"We already have an A [excellent] rating with A.M. Best, although we recognize such a mark is more difficult to get with S&P, our strong financials notwithstanding. [A.M. Best Co., established in 1899, is the world’s oldest and most authoritative insurance-rating and -information source.] Our company is growing at a 15% average annual rate, signs policies worth over $600 million yearly, and insures properties valued at over $8.5 billion," UG’s CEO indicated. A solid score by one of the chief ratings agencies makes it easier for companies to appeal to a wide variety of investment entities with an increased likelihood of success.

Exporting a leadership

"We have great plans for Puerto Rico, a phenomenal place in which to live and do business. Locally, we are leaders in the life, property, and accident insurance sectors and, since 2005, we have ventured into financial services, such as IRAs and annuities. However, we also believe there is a lot of room for growth in North America. We are ready to take our leadership to other territories," Miranda Casañas said. As such, UG is preparing to enter into markets like Chicago and already maintains a strong presence in such states as Texas and Florida.

In Florida, for instance, UG recently assumed control over some 95,000 policies previously held by Allstate Corp. This transaction, which has yet to be finalized, reflects two different visions: UG’s aggressive move to gain territory in Florida and the hard lessons Allstate has had to learn in this "hurricane mecca."

Furthermore, substantial losses from last year’s four hurricanes and disappointment over reforms to the Florida Hurricane Catastrophe Fund have led Allstate Corp. not to renew many homeowner policies in Florida when they expire. It also is planning to raise rates, the company said. Allstate Floridian spokesman Bill Mellander said the company took a "hard look" at ways to reduce exposure to hurricane losses.

During the third quarter of 2004, Allstate said its catastrophe losses from the four hurricanes for its Florida subsidiaries amounted to $811 million. In contrast, Miranda Casañas said, in these cases, UG was able to respond positively to the repeated natural calamities, debuting with a "minimum impact of $2 million remaining and an excellent reaction to loss claims."

Nevertheless, Allstate revealed, "Because of the potential for a repeat of the 2004 hurricane season, the company purchased a two-year reinsurance program to protect itself against more than $800 million in annual future losses [$1.6 billion over two years], in excess of any losses that may be covered by the CAT fund [Catastrophe Loss Fund]." Allstate said the cost for this reinsurance is "substantial," driving a request for a rate increase that currently is being prepared.

The lack of Allstate-requested reforms in the state’s CAT fund also "played a role" in the company’s decision, Mellander said. Allstate pushed for reducing the level of hurricane losses that insurers must bear before getting help from the CAT fund, as well as allowing insurers to pay a single-seasonal deductible before tapping into this fund.

"We have been working extremely hard to enact reforms," Mellander said. "We feel it is necessary to keep the insurance market viable in Florida. A lot has been done. A lot more needs to be done. It clearly needs to be done given the new reality of doing business in the insurance industry in Florida."

Mellander added the dropped policies would be "spread out across the state" and are about 12.5% of Allstate Florida’s 758,000 homeowner policies. However, under an agreement with Allstate, Universal Insurance Company of North America will offer coverage to the nonrenewed policyholders.

In response, Florida Insurance Commissioner Kevin McCarty put out a statement saying Universal would offer Allstate policyholders "significantly similar policies...with no lapse of coverage," and referred to Universal as "a solid company with strong financials."

"It is win-win for Allstate, Universal, and the policyholders," Rick Espino, president of Universal’s Florida operations, maintained. He said Universal agreed to offer to pick up the policyholders based on Allstate’s underwriting strength and because the policies are "well-diversified" and "matched very well with where our aggregates are. It gives us the opportunity to diversify our portfolio, so it was very attractive. We think this portfolio will outperform other portfolios in the state of Florida."

Strategic transformation

UG’s accelerated pace of business in North America is part of a reinvigorated corporate agenda, valued at over $102 million and defined by local and overseas expansion, enhanced technological infrastructure, and expanding market horizons.

The dynamic development undertaken by UG involves, among other initiatives, transforming its service and regional offices into Client Service Centers. Beyond new locations in the state of Florida, this mission also envisions establishing offices in Ponce, Caguas, Arecibo, and Mayagüez, including a modern technological center based in Dorado. Initially, it is estimated that each new "bastion" UG sets up will generate 25 to 30 direct jobs.

Another significant project is a new, modern 150,000-square-foot building that will become the headquarters for Caribbean Alliance Insurance Co. (Caico, one of UG’s eight subsidiaries). The eight-floor structure will be near Uruguay and Mexico streets in Hato Rey and will cost around $50 million.

"We grow on the basis of quality. As such, we have concentrated on process flexibility while minimizing defects as much as possible. The client’s first order of business is to receive payment on time, and our aim is to pay as many claims as possible on the same day they are posted," Miranda Casañas commented. "We are offering a varied menu of insurance products that solve real-world problems and offer reliable benefits. We want our clients to feel we are meeting our end of the deal, and that we aren’t getting rich at their expense."

With a payroll of more than $34 million and over 850 employees, UG is the parent company of eight operations: Universal Insurance Co., Eastern American Insurance Co., Eastern America Insurance Agency, Caico, Universal Life, Liberty Finance, Universal Auto Care, and Universal Insurance of North America.

This Caribbean Business article appears courtesy of Casiano Communications.
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