A Study of Contrasts

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1 Florida Homeowners A Study of Contrasts Casualty Actuarial Society Palm Beach, Florida Senator Locke Burt Chairman and President Security First Insurance Company May 16,

2 The Florida Insurance Market for Personal Residential Insurance Type of Policy Market Citizens Citizens Market Share Allied Lines 319, , % Condo Units 801,510 88, % Dwelling Fire 657, , % Homeowners 3,550, , % Farmowners 2, % Mobile Homes 411, , % Tenants 312,349 16, % Total 6,055,298 1,256,

8% Condo Units 801,510 88,461 11.0% Dwelling Fire 657,795 248,781 37.

3 The Florida Insurance Market for Personal Residential Insurance Implementation of Wind Mit Credits Drove Rates Down 3 3

4 The Florida Insurance Market for Personal Residential Insurance Estimated t Citizens Rate Need Fall 2010 (PLA and HRA combined) Total In-force Premium at Current Rate Level Indicated Rate Level Change (Statewide Weighted Average) Homeowners $950,012, % Dwelling (excluding mobile homes) $323,607, % Condo Unit Owners $72,737, % Source: Citizens Rate Filing 4 4

Level Change (Statewide Weighted Average) Homeowners $950,012,405 55.

5 The Florida Insurance Market for Personal Residential Insurance Citizens Rate Advantage Continues to Grow Annualized Weighted Average Top % Top % Citizens 7.72% 0.00% 5.00% 10.00% 15.00% 20.00% Source: Merlinos & Associates, Inc. All data from Office of Insurance Regulation s Form and Rate Document Management Service (FREDMS) 5 5

64% Citizens 7.72% 0.00% 5.00% 10.00% 15.00% 20.00% Source: Merlinos & Associates, Inc.

6 Security First Insurance Company Started Fall 2004, privately held Harry Bleiwise Chairman Emeritus Locke Burt Chairman and President 6 6

7 Security First Insurance Company Current In-force Business March 31, ,205 policies, approximately 2.5% of Florida homeowners Multiple Sources of Production Multiple Products Mostly HO3 Year Built Mostly Newer Homes 48.7% 10.0% 18.5% 23.8% 38.7% 51.3% 71.5% 17.7% Independent Captives & Direct HO-3 HO-6 DP % 2002 and Newer and Older 7 7

5% of Florida homeowners Multiple Sources of Production Multiple Products Mostly HO3 Year

8 Statewide Spread of Business 8 8

9 Security First Insurance Company Executive Team 9 9

10 Security First Insurance Company 10 10

11 The Financial Metrics of a Successful Florida Homeowners Insurance Company Cost of reinsurance 40.0% Claims (excluding hurricanes) 35.0% Local agents commission 10.0% Premium tax 2.0% Administrative expenses 8.0% Total 95.0% Pre-tax profit 5.0% Corporate Income Tax 0.30% Underwriting Profit 4.70% 11 11

0% Local agents commission 10.0% Premium tax 2.0% Administrative expenses 8.

12 The difference between the Winners and the Losers Successful execution of a business strategy in an unfriendly environment that s constantly changing

13 It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change. - Charles R. Darwin 13 13

14 Reinsurance Purchasing Strategy 14 14

15 Active Aggregate Management 15 15

16 Active Aggregate Management Daily Review distribution ib ti of business by county and channel of distribution ib ti 16 16

17 Active Aggregate Management Weekly Identify and scrutinize areas with highest increase in TIV 17 17

18 Active Aggregate Management Monthly Review changes from various month end reports 18 18

19 Active Aggregate Management Every Four Months Update the voluntary template and include rate changes, new model results, updated attritional loss and reinsurance costs 19 19

20 Active Aggregate Management Continual Update the Aggregate Management System to maintain balance and profitability Fort Myers Miami 20 20

21 Managing Catastrophe Model Changes Catastrophic Risk Model Overview Security First Insurance In-force Policies as of 1/31/2011 Gross Losses, Including Demand Surge, Excluding Storm Surge Model Average Annual Loss 20 Year Event 50 Year Event 100 Year Event RMS v9 Hist $24,707,976 $106,625,357 $207,399,050 $327,824,865 RMS v11 Hist $31,989,161 $156,367,882 $309,117,494 $463,330,985 AIR v11 Std $25,641,099 $115,847,598 $232,255,370 $361,918,349 AIR v12 Std $32,663,948 $152,678,054 $286,012,853 $460,071,459 FL Public Model $31,062,770 $162,267, $248,310, $325,831,

22 Managing Your Attritional Loss Ratio 22 22

23 Managing Your Attritional Loss Ratio Non- Cause of HOUSE Pure Claim Count Freq Severity Cat Loss YEARS Premium L/R Cat L/R Total L/R Wind 263, $5, $ Water 263, , $7, $ Vandalism 263, $4, $ Theft 263, , $3, $ Sinkhole 263, $78, $ Other 263, , $3, $ Mold 263, $3, $ Lightning 263, $2, $ Liability 263, $8, $ Hail 263, $6, $ Fire 263, $60, $ Totals 263, , $9, $

24 The Florida Insurance Market for Personal Residential Insurance Citizens Market Share By County (HO3 Owner Occupied Homes) Hernando 56.0% Pasco Miami-Dade 42.0% 41.0% Pinellas Broward 24.0% 30.0% Palm Beach Charlotte 14.0% 12.0% Hillsborough 11.0% 10.0% Sarasota 2.5% Remainder of the state (58 counties) -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% Source: QUASR December 31,

25 Managing Your Attritional Loss Ratio Get the Premium Your Entitled To First in the state to re-inspect homes for windstorm loss mitigation credits 25 25

26 Windstorm Loss Mitigation Re-inspection Results (as of 2009) 26 26

27 Managing Your Attritional Loss Ratio Continuously review losses to identify potential problems 27 27

28 Managing Your Attritional Loss Ratio Continuously review losses to identify potential problems 28 28

29 What s a sinkhole loss? Catastrophic Ground Cover Collapse 29 29

30 What s a sinkhole loss? Optional Sinkhole Loss Activity Coverage 30 30

31 Sinkhole Activity Coverage The Real World Damage to the insured risk was minimal. There was some very light cracking on the rear elevation wall, separation in the pavers, light crack on the floor in the exterior entry and two small areas of cracking in the interior on the rear elevation wall. ~ Security First Adjuster Claim File Note 31 31

32 32 32

33 Sinkhole Activity Coverage The Real World Security First Remediation Process 1.Stabilize subsurface soils: grout injection to compact and densify soils beneath structure. a) 26 injection points spaced 10 on center around the structure s perimeter b) Each injection 15 deep 2.Stabilize and re-level the foundation of the structure by installing underpinning piles. a) Depth of underpinning piles 40. b) 37 piles installed

34 Sinkhole Activity Coverage The Real World Estimated Cost to Remediate (not including cosmetic repairs) Install Grout Pipes: 40 $17/ft $25,160 Grouting: 350 cubic yards $170/cy $59,500 Install pin piles: 37 $1,475/each $54,575 Monitoring and Clarification: $15,100 Total $154,

35 Managing Your Attritional Loss Ratio Rd Reduce exposure to sinkhole ikhl activity tiit losses by requiring inspections prior to binding coverage 35 35

36 Monitor the Legislature for Threats and Opportunities 36 36

37 SB 408 major change to loss reimbursement 37 37

38 Other Elements of SFIC s Success Explaining Reinsurance to Agents and Customers 38 38

39 Other Elements of SFIC s Success Explaining Reinsurance to Agents and Customers 39 39

40 Other Elements of SFIC s Success Explaining Reinsurance to Agents and Customers 40 40

41 Other Elements of SFIC s Success Building Brand Awareness Television i advertising i in multiple l markets 41 41

42 Other Elements of SFIC s Success Staying on the forefront of technology ipad Website iphone App, Security First Mobile 42 42

43 Other Elements of SFIC s Success Develop innovative, new tools for our agents and customers to take control of the insurance purchasing process 43 43

44 44 44

45 Welcome to Florida 45 45

46 Conclusion Location and Politics make this a very tough place to do business We ve proven Florida-based companies can be successful when they have a clear strategy and a dedicated team of insurance professionals 46 46

47 Questions or comments? Locke Burt Chairman and President Security First Insurance Company 140 S. Atlantic Avenue, Suite 200 Ormond Beach, FL (386)

Company Overview and Business Plan

SECURITY FIRST INSURANCE HOLDINGS, LLC SECURITY FIRST INSURANCE COMPANY SECURITY FIRST INSURANCE AGENCY, LLC Ormond Beach, Florida Company Overview and Business Plan February 2005 SECURITY FIRST INSURANCE