Florida’s Sypher Insurance Exchange Gets COA and a BBB Strength Rating

After more than two years of company-building and fundraising, Tampa-based Sypher Insurance Exchange has won its certificate of authority and a financial rating. The stamps of approval mark Sypher’s official entry into the market as the first property insurer with significant investment from insurance agents.

Sypher CEO and Founder Subhashish Dutta called it the start of “new era” for the Florida property insurance.

“We bring a fundamentally different approach to sustainable capacity in Florida,” Dutta said in a statement. “Over the past two years, we have built an integrated platform that brings together insurance, reinsurance, and technology from day one.”

The Florida Office of Insurance Regulation last week granted the COA, making Sypher the 21^st new property insurer to enter the Florida market since 2022 legislative changes that helped ease excessive claims litigation costs for carriers.

That COA was followed by a “BBB” financial strength rating from the KBRA rating firm on Monday, June 1.

“The rating reflects adequate initial capitalization to support near-term operating volatility, low net underwriting leverage supported by the Exchange’s quota share reinsurance structure, and a conservative investment strategy that emphasizes liquidity and capital preservation,” KBRA said in its rating report.

As a startup, not a spinoff, Sypher also benefits from not having legacy liabilities and reserve development risk, the rating firm noted. Sypher leadership has chosen to stay away from takeouts from the state-created Citizens Property Insurance Corp. and rely on what KBRA said is a good thing: “controlled organic growth.”

On the other hand, KBRA noted, Sypher’s statutory surplus is funded entirely through a surplus note—$25 million initially. That means high financial leverage and weaker capital quality.

“The rating is further constrained by the Exchange’s concentration in Florida residential property, which exposes results to catastrophe risk, weather-related volatility, and Florida-specific regulatory and litigation developments,” the rating agency wrote. “While reinsurance materially mitigates retained loss severity and supports net underwriting leverage, the Exchange remains dependent on continued access to reinsurance capacity at economically viable terms.”

Still, KBRA said the outlook for Sypher is stable, with an expectation that the exchange will maintain adequate capitalization and will preserve targeted underwriting leverage consistent with its business plan. The combined ratio for Sypher should be a healthy 82% within 12 months, KBRA said.

Sypher made headlines in early 2024 when it was announced that the Florida Association of Insurance Agents, the largest agent group in the state, had made an unprecedented and significant investment in the company. The dollar amount of FAIA’s investment has not been made public.

Sypher will distribute HO policies exclusively through independent agents, and KBRA said that Sypher will benefit from its relationships with agents, which could help with early onboarding of policyholders. The exchange’s leaders have said the company has met repeatedly with agents to iron out which technology platforms it should be using to let agencies quote, bind and service business.

Sypher should start writing homeowners policies later this summer, leadership said.

Company officials have not indicated what average HO rates or premiums may be. Much of a rate filing with OIR from early this year is marked “trade secret” and is not viewable. But other parts of the January filing had highlighted sections from other carriers’ previous filings, showing ways in which the insurer may limit its exposure. These include a premium surcharge on seasonal property that remains unoccupied for much of the year; and an optional HO policy endorsement for animal liability.

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