Buchmueller says one of the chief advantages of this model is that it aligns the interests of the company and its policyholders-something that wealthy clients are looking for in all aspects of their financial services.
"It provides increased transparency and a sense of alignment," he says.
Weathering Storms
Pure, whose launch was financed by partner Stone Point Capital, a private equity firm that specializes in insurance, feels it is on the right track when it comes to remaining a viable competitor to the likes of Chubb and Fireman's Fund.
The firm's service footprint has continued to expand. After launching only in Florida, the firm is now licensed in 41 states, with plans to go nationwide within two or three years, according to the firm's founders.
But the company hasn't been immune to the risks and volatility that are the nature of the insurance business. The historic storm damage of 2011 was the company's toughest year in terms of insurance payouts. It was also the first year since the company's launch that Pure ended with a net decrease in its surplus account, by about $393,000, according to Buchmueller. By comparison, the company increased its surplus account the previous year by $2.1 million.
"It's going to be one of our more challenging years, but we're happy where we are from a capital basis," Paraschac says.
In its 2010 annual report, the firm noted that its Florida business was losing money, which resulted in an increase in premiums in that state and an end to wind coverage for about 1% of the firm's members living along the Gulf Coast of southwestern Florida. The firm said the cause of the problem was that the cost of policies in Florida, including reinsurance to protect against major hurricanes, was exceeding collected premiums.
The Florida situation contributed to an overall company loss in 2010, which is one of the reasons the company is branching out to the rest of the nation. After the company did all its initial business in Florida in 2007, the state now accounts for about 29% of its premiums, according to the 2010 annual report.
Buchmueller notes that years with high storm damage, such as the ones experienced in 2010 and 2011, are inevitable in the insurance business and impact companies across the board. Pure's unique strategy, he feels, has already proved itself viable going forward. While on a statutory accounting basis the company has yet to turn a net profit, he says the more important line item is the company's policyholder surplus, which had shown consistent net gains up until 2011.
"We're steadily growing assets, capital and premiums, and diversifying premiums," he says. "We're built for the long run."