A Fort Lauderdale team from Greenberg Traurig represented Clearwater, Florida-based Heritage Insurance Holdings Inc. in its $250 million purchase of another home insurer.
Heritage Insurance Holdings, the publicly traded holding company of Heritage Property & Casualty Insurance Co. and others, bought NBIC Holdings Inc., the holding company for Pawtucket, Rhode Island-based Narragansett Bay Insurance Co.
The deal helps Heritage Insurance Holdings, which provides insurance in the Southeast and Hawaii, spread its risk to the East Coast.
“The first precept of insurance is to spread your risk,” said Greenberg Traurig shareholder Fred Karlinsky.
Spreading risk geographically protects insurers from one catastrophic event in one area, such as a hurricane in Florida or a wildfire in California.
Karlinsky and shareholder Stanley “Stash” Jacobs Jr. worked on the deal. The other attorneys most involved were shareholder Mathew Hoffman, senior practice group attorney Andromeda Monroe and associate Alexander Zachariah. The transaction closed Nov. 30.
Heritage Insurance Holdings already provided coverage in Florida, Alabama, Georgia, North Carolina and South Carolina. In 2016, it expanded to Hawaii when it bought Zephyr Acquisition Co. and its wholly owned subsidiary and specialty insurance provider Zephyr Insurance Co. for $134 million.
Greenberg Traurig worked on that deal, said Karlinsky, who also helped Heritage Insurance Holdings get started in 2012.
Now, Heritage Insurance Holdings is expanding to the five states where Narragansett Bay Insurance provides coverage: Rhode Island, Connecticut, Massachusetts, New Jersey and New York.
The attorneys’ team closed the deal unusually quickly. The turnaround this time was thanks in part to Greenberg Traurig’s vast experience and knowledge of the regulatory process, Karlinsky said.
“It’s not common to take a regulated entity in August and then ultimately close about 90 or so days after that. That’s a pretty aggressive time frame,” he added.
Heritage Insurance issued $40 million of common stock to pay for part of the price, Jacobs said. He led a multidisciplinary team of attorneys to work on this deal, he said.
“It included the negotiation of the definitive agreements. It included legal due diligence. It included regulatory approvals that were necessary and it included the (common stock) issuance,” Jacobs said.
The new, combined entity will provide insurance in 11 states and more than $900 million of gross premiums written.
The deal points to the diversification in the homeowners insurance industry, Karlinsky said.
“What we are seeing now is more smaller and super regional companies writing in disaster prone areas and in fact all over the United States. Whereas, 10- or 12 years ago, you may have had five or six very large insurance companies dominating this marketplace. Now, you have a multitude of much smaller carriers writing maybe 1- or 2- or 3 percent of business in a particular state and a number of different carriers making up the mix of companies writing business in a state,” Karlinsky said.
This change could be traced to Hurricane Andrew, he added, when a number of insurers concentrated in one area went out of business after the storm devastated parts of South Florida.
But the insurance industry has advanced since then, Karlinsky said.
“Hurricane modeling and the use of the worldwide re-insurance market has really put us in a situation where a company can … understand what business it’s writing so they really have an appreciation of the actual cost and expense to the company,” he said, “That creates a situation where you really do truly, as opposed to have concentration issue, you have a real spreading of the risk throughout, in some cases state by state, and in others, in the case of Heritage, a national carrier writing business in a multitude of states.”