A good decision

FCCI's entry into other lines of business prove propitious

By Dennis H. Pillsbury

“I have the best $300 million book of Florida workers comp in the country,” says G. W. Jacobs, president and CEO of Sarasota, Florida-based FCCI Insurance Group. Then he adds with his tongue firmly placed in his cheek: “The only problem is I get only $110 million in premium for it.”

Usually when one talks about a perfect storm in Florida, it’s a hurri­cane. And there certainly were plenty of those since 2003 when we last wrote about FCCI and its decision to de-emphasize its concentration on workers comp, as well as its geographic concentration. At that time, the company wrote $445 million in premium of which $240 million came from Florida workers comp. But, between then and now, there’ve been a few bumps in the road.

The initial bump was badly needed reform of the Florida workers comp system and the concomitant rate decreases that accompanied the reform. Jacobs admits that the reforms have been successful, but the rate reductions of about 60% over the years have created a situation where “our top line challenges have been agonizing. Profitability has been unquestioned throughout,” he adds quickly, “but we have very skinny margins at this point.”

What helped create the perfect storm was the economic recession that hit Florida’s construction industry particularly hard and that reduced the exposure base as employees were let go. Not surpris­ingly, FCCI had a large footprint in the building trades since it was initially formed in 1959 by the Gulf Coast Builders Exchange as a trust that would provide workers comp coverage. It converted to a mutual in 1994 and then to a mutual holding company structure in 1998, with FCCI Insurance Co. becoming a stock company. The company started writing lines of business other than workers comp in 1996. The company also has branched out to write in 14 states in the Southeast and Midwest, and plans to start writing in Virginia and Maryland in the near future.

Partnership with agents

“The good news is that the decision we made to start writing other lines of business in other states, to the extent that we have had time to evaluate it, has been proven efficacious,” Jacobs says. “It’s been a very good thing. We’ve had some great stories in some states and needed more learning in some other states. But our model of having people close to our customers—our independent agents—has proven itself. In fact, we just introduced a new Gulf Coast Operations office in Mississippi, which will ultimately lead us into other states.

“Our expansion into other states follows the needs of our customers,” Jacobs continues. “We have agents in the states where we write who are located on the borders of neighboring states and they come to us asking us to provide markets for customers in those states. That’s really one of our principal motivators for expansion into a new state. Our agents have provided us with very good business and have helped us understand the unique market conditions in each state that we enter. It’s been a very helpful partnership.”

Financially strong

Despite the sharp drops in workers comp premiums, FCCI’s premium volume remains ahead of 2003 at $472 million in 2009, although this is down from a high of $581 million in 2006. But more important has been the impact of consecutive years of profitability brought about by careful underwriting. Surplus was at an all-time high at the end of 2009 at $427 million, giving the company a very comfortable premium-to-surplus ratio of less than 1.1 to 1. And investible assets have risen from $670 million in 2003 to $1.24 billion at the end of last year.

At the same time, reserves have been established conservatively with the result being that the company has enjoyed favorable loss reserve development in nearly every year in the last decade. These strong performances have allowed the company to continue to pay dividends to its Florida workers compensation customers, reflecting good loss ratio performance despite premium reductions.

While workers compensation remains the largest line of business, it now represents about 45% of the company’s total written premiums. The next largest line is commercial auto, which “has been performing very well,” Jacobs points out, followed by multiple peril package.

The insurer’s financial position has allowed FCCI to invest in infrastructure to better prepare it for further expansion. “We spent a lot of money on technology,” Jacobs points out. “We are going to one policy system from four so we can reach a point where we feel secure in moving into other territories. We recognize that we need to be able to react quickly, and a single IT system was essential. Basically, we started from scratch and created a system that was state-of-the-art. Now we need to maintain that level of excellence as we move ahead with our expansion plans.”

While a lot has changed, much of it for the better, one thing that has not changed is the company’s commitment to independent agents. What G. W. Jacobs said in 2003 remains true today: “Our marketing strategy is to go after the middle market, which for us is defined as companies with $25,000 to $250,000 in premium, using independent agents as our sole distribution system. Independent agents have been an integral part of our success and we will continue to rely on them as we grow and expand.”