Toward the end of 2005, shortly after Hurricane Katrina devastated New Orleans and the surrounding Gulf Coast, three insurance industry veterans got together for a daring undertaking.
As other insurers were falling over each other to get out of the nation's hurricane-prone zones, this trio decided the time was right to start an insurance company and enter the very same high-risk market.
The billions upon billions of payouts that the insurance industry was enduring didn't matter. What did matter was that the Gulf Coast housing market was virtually devoid of meaningful competition when it came to home insurance for the high-net-worth sector. At the same time, they reasoned, there was a sizeable stock of expensive homes in the region, owned by wealthy families that could spend what it took to make them hurricane resistant.
"There is a very select group of high-net-worth individuals who are very responsible, who look after their property very well," says Martin Hartley, one of the three partners who founded White Plains, N.Y.-based Privilege Underwriters Reciprocal Exchange (Pure) in 2006. "Those are the people we were targeting."
Since signing up its first policyholders in January 2007, Pure has been able to grow its business, diversify its policies to include wealthy homeowners in other areas of the country, and successfully compete with big players such as Fireman's Fund, AIG and Chubb, which have traditionally dominated the high-end insurance market. The firm, which sells its policies largely through a network of independent agents, currently serves 14,000 policyholders in 35 states who pay more than $130 million in premiums per year. The company has a premium-to-surplus ratio of about 50% and a statutory surplus of $96 million, which has earned it a rating of "Excellent" from A.M. Best Company.
The firm targets policyholders with homes that cost at least $1 million to replace-a cutoff that places most of the firm's clientele in the nation's top-half percent of wealth, according to company officials. Most of the policyholders also use Pure to insure other personal possessions, including jewelry, cars and other collectibles, and on average pay about $10,000 for Pure insurance, according to the firm's founders. The average Pure policyholder actually holds more than two policies, according to the firm.
The firm will insure homes with a rebuild cost of up to $15 million and has at least one policyholder with a fine art collection covered by $25 million in excess liability coverage, Hartley says.
"This is a difficult industry to deliver returns to investors," says Jeffrey Paraschac, one of the founders and Pure's chief financial officer. "The exception is in niches like these that have limited competition."
As Pure President and CEO Ross Buchmueller tells it, when he, Paraschac and Hartley set out on their new venture six years ago, they knew they needed to rely on more than the dearth of competition in the high-end insurance sector to succeed. They needed a way to set themselves apart from the rest of the crowd.
Toward that goal, they were confident in the industry knowledge they brought to the table, as all three had years of experience in the high-net-worth insurance niche. Buchmueller was an executive with both Chubb and AIG, and in 1999 founded AIG Private Client Group (since renamed Private Client Group of Chartis Insurance), serving as its president for six years. Hartley and Paraschac also worked at AIG Private Client Group, and Hartley previously met Buchmueller at Chubb, when they were part of the team that expanded Chubb Masterpiece, the company's high-end insurance division, into London.
The idea for Pure, according to Buchmueller, grew out of a belief by all three that these market leaders underserved the high-net-worth sector. They felt that by starting a company that was devoted exclusively to this market, unencumbered by corporate red tape and legacy risk exposures, they could beat their competitors both in terms of price and service.
"One of the key things for us is that this is the only business that we're in, and I think that provides an advantage," Paraschac says.
Such specialization allows the firm to take a more refined approach to services and the type of risk that it insures, the founders say.
At its launch, for example, the firm signed policies only in Florida that were limited to relatively new homes built to the highest building code standards, with features such as concrete reinforcement and roof tiles tied with hurricane-proof straps, Hartley says. Indeed, about a third of the homes covered by Pure in 2007 were completed that same year.
"We started with a pool of members who were definitely going to outperform the average in that state," he says. "Our view is, if you think of insurance as a pool of risk, we are going to reserve our capacity to offer coverage to the best of the best."