After additional scheduled take-outs before the end of May, Weston could be the owner of 23,000 personal policies, 5,000 commercial nonresidential policies and 3,000 commercial residential policies.

By law, personal residential and commercial residential policyholders have the option to remain with Citizens.

The domestic insurer, which received its certificate of authority two months ago, has successfully gone through the rigors of proving it can support the policies, access enough reinsurance and follow the same glide path for rate increases as Citizens is bound by law to follow.

Michael Lyons, president of Weston Insurance, says there was a “clear signal for the need for capacity,” especially for commercial wind-only business. After speaking with state regulators, he started Weston Insurance Holdings in March 2011 and began coming up with a business plan.

“No matter how good the plan was, it wasn't going to work unless agents and reinsurers bought into it,” Lyons tells PC360.

Lyons says his company spoke to agents, who expressed a “desperate need for wind-only capacity on an admitted basis” because the non-admitted market, they said, was too difficult to manage in terms of pricing and coverage.

Weston contacted some of Citizens' top agents, gathered a hypothetical book of business and began “extensively modeling at the portfolio level,” so the insurer was able to approach the reinsurance market with modeled results of actual policies from Citizens, says Lyons, a mathematician with executive-level experience in both the insurance and reinsurance sectors.

“We told them: 'This is what we can get [from Citizens]. Would you be willing to support it?”

Austin Neal, attorney for Weston andf Florida counsel for Lloyd's of London, says reinsurers have welcomed the proposal to write wind-only coverage.

“In discussions, it was clear that [reinsurers] feel they understand wind risk,” Neal says. “To them, with wind-only, they know what they're reinsuring.”

The reinsurance component was essential to Weston's long-term vitality and its promise to offer comparable coverage and maintain the Citizens' mandated glide path—rate increases of no more than 10 percent per year—for a minimum of three years on all assumed policies.

“In listening to our policyholders, we've learned that one of their main concerns in evaluating a takeout offer is the worry that their rates will increase dramatically or their policies will be cancelled at renewal,” says Barry Gilway, CEO of Citizens, in a statement. The plan needs approval by the Citizens' Board of Governors.

These concerns typically lead policyholders to stay with Citizens, or return to the insurer—the exact opposite of what the insurance industry and policymakers in the Sunshine State have been trying to do; that is, shrink Citizens below its status as the largest property insurer in the state to reduce the potential for emergency assessments on taxpayers should a large catastrophic event occur.

The Florida Office of Insurance Regulation stress-tested Weston's finances for 18 months against “all sorts of catastrophic and economic scenarios,” Lyons says. In their assessment, regulators considered the private-reinsurance marketplace as well as the Florida Hurricane Catastrophe Fund.

Lyons says Weston received a “great deal of support” from the OIR and Citizens, once the OIR had concluded its stress-testing and Weston was issued a Permit Consent Order early last year. The company has $50 million in surplus—well above the statutory requirement—and it is seeking an A.M. Best Co. financial strength rating, in addition to the “A” (Exceptional) rating it has already received from Demotech, says Neal.

As part of the plan, Weston and Citizens are entering a quota-share reinsurance agreement in which Weston will pay all claims for the wind-only policies it has earmarked for assumption until May 31. Citizens is paying Weston a premium for the coverage—just in time for hurricane season.