The President and CEO
Dear Fellow PURE Members,
We pride ourselves on maintaining a culture of empathy. In the second half of 2017, there were many instances when we found it difficult to put ourselves in the shoes of so many PURE members. We tried to empathize with the Houstonians who watched more than 50 inches of rain fall in a matter of days and wash away parts of their community. We followed closely the formation and development of Hurricane Irma into the most powerful storm ever measured in the Atlantic Basin, offering whatever advice and assistance we could for defending against a storm packing 185-mile-per-hour winds. We were deeply engaged in the effort to mitigate potential damage from record-setting wildfires in Northern and Southern California, but it is still difficult to fully appreciate the emotion that comes when such fierce firestorms move with the force and velocity that we witnessed. For many weeks, we opened every morning with a briefing from our catastrophe response team and asked them to measure the mood of the membership during such trying times. Inevitably, our Claims professionals shared stories of the warmth, calm and grace that PURE members showed to our staff as they attempted to do their jobs. To all of the PURE members who went through one of the many catastrophic events in 2017, you have our deepest respect for the strength and resiliency you showed.
Your insurance company emerged from 2017 bigger, stronger and smarter, brimming with ideas of how we can even better serve the membership in the future. Premiums grew by over 22 percent, fueled by referrals from existing members. Policyholder surplus in the PURE Group of Insurance Companies increased by more than 30 percent and passed $400,000,000 by year’s end. The strong underwriting results of the first half of the year largely held up through the very active second half of the year. Investment returns were strong all year long, and the capital flexibility of the PURE Group was on full display as the parent company of the Attorney-in-Fact made investments in the pooled reinsurer, PURE Insurance Company. Surplus contributions from the PURE membership continue to provide a critical, low-cost source of capital that builds our balance sheet, keeps premiums low and reduces the influence of outside shareholders. All in all, I am very proud of our financial performance.
MORE CAPABILITIES AND A BETTER MEMBER EXPERIENCE
Throughout the year, we continued to grow PURE Programs, a business launched in late 2016 designed to serve those with high-value and high-risk exposures. Through PURE Programs, we aim to deliver world-class services to an underserved segment of the market without assuming the risk. We have partnered with two high-quality insurers thus far who underwrite these policies while we serve as the managing general underwriter and program administrator. This business has allowed us to deepen relations with existing members and invest in additional claims and risk management resources to serve all members.
We also acquired a specialty fine arts company, The Haven Art Group, which has already delivered for the PURE membership, particularly during the catastrophes. I have known Claire Marmion, CEO of Haven, for more than twenty years and hold her in the highest regard. Claire and her team deliver two sets of services. They provide full curatorial services to art collectors, helping their clients preserve and enhance the value and enjoyment of their collections. They also have a claims-management business resolving insurance claims for museums, galleries, private clients and other art-related issues. Increasingly, the Haven team is helping PURE members pursue their passion for art collecting with greater confidence. If you need assistance acquiring a new piece or an updated valuation for your collection, Haven can help. Many services are complimentary to PURE members, while larger-scope projects are fee based. We have all been so impressed by Claire and her team, and we’re delighted to have them on board.
We also advanced important innovations in the products we offer. By changing the way we develop premiums for higher-limit liability policies, we began the process of fixing a problem that has frustrated consumers for many years. For those of you who want to sleep better knowing you have a very significant liability limit protecting your assets, we now charge a linear rate for the higher limits. A $20,000,000 Personal Excess Liability limit will now cost twice the amount of a $10,000,000 limit. A $50,000,000 policy will now cost twice what the same person would pay for $25,000,000. In the past, if you fought through to buy a higher limit, you paid a higher price. If the high prices inhibited you from buying the limit you wanted, you bought too little. Arguably, nobody got it right. Our approach is simple and logical.
We launched a new product, PURE Starling™, aimed at providing a more complete financial response to online and offline fraud. We have worked hard to provide advice for our membership to help combat the growing impact of cybercriminals. We are very pleased to now offer an insurance product that will indemnify our members for their covered financial loss, up to $1,000,000. The product is available in the vast majority of states, and I encourage you to speak to your broker about how it could protect you.
Your enthusiasm continues to be one of our primary measures of success. Our Net Promoter Score increased again to 71.
CULTURE AND COMMUNITY
Our ability to deliver an exceptional member experience starts with putting the most talented people in an environment where they feel safe, trusted and confident, so they can do their best work. Our team has come together to earn recognition for Best Places to Work, as well as prestigious honors for Best Places to Work for Women. Across the country, we have witnessed a renewed conversation about harassment, equal pay and the importance of creating a safe and inclusive workplace for everyone. We are humble enough to know we are not perfect, but I am confident we are getting better every day. Today, more than 30 percent of our senior leaders are female. It’s an improvement, but it’s not enough. We are committed to fulfilling our promise to have equal composition of and contributions from men and women in our senior ranks.
Across the insurance industry, a crisis is brewing as a large part of the industry workforce prepares for retirement while there seems to be a shortage of young talent. Fortunately, that is not the case at PURE. We hired over 50 college graduates in 2017 for their first jobs in Claims, Underwriting, Actuarial, Product Management and Member Services. Over the past seven years, we have hired almost 200 graduate trainees from some of the top schools in the country. Our retention rate remains nearly 90 percent, and we still enjoy seeing 100 percent of the 2010 class come to work and make great contributions. I don’t want to give away all of our recruiting secrets, but I attribute some of our success to a focus on strong liberal arts colleges where we find curious young men and women with strong skills in critical thinking. Second, we strongly believe that being a purpose-driven organization makes us attractive to all candidates, especially those of the younger generation, who eagerly want to understand “why” we do what we do. Lastly, it helps a great deal to be growing and investing and in an environment where opportunity is clearly visible.
The voice of our employees continues to grow, and in 2017, they spoke loudly about their desire to give back to the communities where we live and serve. We launched an initiative to invest 500 days of volunteering across the country within one year. Office by office, we have helped improve third-grade literacy through reading programs and book drives, fought homelessness through initiatives for affordable housing and volunteer work at local shelters and raised awareness and funds for causes that are most personal to our staff as they and family members fight deadly diseases. You can read more about our team’s volunteer efforts in the pages ahead.
The biggest financial commitment to help our communities came through our sponsorship of the PURE Insurance Championship Impacting The First Tee. The First Tee, one of the most successful youth development programs in the country, teaches life skills through the game of golf. A few First Tee graduates have gone on to great success in professional golf. Millions of First Tee graduates will have greater success in life due to the reinforcement of the Nine Core Values of The First Tee and the lessons learned through this remarkable program. The PURE Insurance Championship Impacting The First Tee might be the best event of any of the PGA TOUR events. It brings together the legends of golf with business leaders and 81 of the most inspiring young men and women you will ever meet. And the venue is the famed Pebble Beach Golf Links. We are most proud of our partnership with The First Tee, the PGA TOUR Champions, and the host organization of the event, the Monterey Peninsula Foundation, which raises funds to benefit local charities in addition to The First Tee. If you’re in Northern California September 28–30, please stop by the 2018 event as our guest. Otherwise, I hope you’ll watch Bernhard Langer try to defend his title on The Golf Channel.
While we hope every New Year will break the trend of damaging, extreme weather events, it seems inevitable that we will see more. When Hurricane Matthew made landfall roughly 18 months ago, we had one dedicated catastrophe adjuster who could drop everything and be on-site to begin our response. Today, we have 14 full-time adjusters on staff who are dedicated to catastrophe response. We have learned from our experiences and believe we can design our coverages to be even more responsive and deploy our resources to have an even greater impact in your recovery. When a catastrophe hits, we will be ready.
We are increasing our efforts to prevent losses from happening in the first place. Two years ago, we hired a talented data scientist, and she has assembled a first-class team. Their ability to build models that more accurately predict future losses has given our Underwriting team greater confidence in their decision-making and helps our Risk Management team prioritize their engagement. We want our Risk Management professionals to have an ongoing relationship with the membership and to take it personally when one of their assigned members has a claim. Lastly, the technology to impact potential claims is getting better and cheaper. Three years ago, our membership suffered an unacceptable number of burst pipes claims during an extremely cold winter. Today, more and more of our membership can adjust the heat in their homes when they are away during the winter to avoid returning to a disaster. We will continue to research and share the newest and best technologies to prevent water damage and other avoidable losses. If you find them first, I would be grateful if you would share your experiences.
A PURE member shared with me his view that “luxury once meant having people to do things for you, and today, luxury means being able to do it yourself—often on your phone—and with no friction.” I have challenged our team to reflect on this observation and to increasingly digitize our business and reduce friction wherever possible. We have gathered dozens of the best independent insurance brokers for their wisdom, and we are dedicating a group of marketing and technology professionals to make improvements, big and small, that will enhance the member experience. We are committed to a journey of continuous improvement, and as we begin to advance these efforts, I hope you will notice things becoming easier and easier when dealing with PURE.
Over the years, we have made good use of reinsurance to further strengthen our claims-paying ability. We buy catastrophic coverage to ensure we can honor all of our obligations in the face of some of the most extreme events, and we buy proportional (or quota share) reinsurance as a partnership that shares our results with reinsurers and serves as a flexible source of capital. The catastrophe reinsurance market saw some of its first losses in a long time in 2017 and will be looking for rate increases for future renewals. All things considered, our results have been excellent, and no single event triggered a catastrophe reinsurance claim. Hopefully, our excellent results will be part of the consideration as we prepare for our renewal negotiations. Our quota share reinsurers have done better in some product lines than others. For those reinsurers who participate across the board on all of our treaties, most years have been positive. Looking forward, we need to expect some increase in the cost of our reinsurance. Rates across the industry will likely be moving up in 2018, and we foresee maintaining a highly competitive rate position.
In January of 2006, Martin Hartley, Jeff Paraschac and I launched a partnership with Stone Point Capital to create a new kind of insurance company with old-school values. Today, Martin, Jeff and I are still hard at work, and we continue to enjoy our partnership with Stone Point as we enter our 13th year together. There aren’t many private equity sponsors who stay with operators well into their second decade, but Stone Point isn’t your average partner. They have believed in our vision that if we put our focus on the membership, the investor-owned parts of the PURE Group will do great. Alignment of interests wasn’t some buzzword but an essential commitment by all of us. Over the past 12 years, we have added more than 600 colleagues, another prestigious investment partner (KKR) and a third, highly regarded institutional investor (XL Catlin). When I think about our employees, our investors and the partnerships we enjoy with the best insurance brokers in our niche, I am well aware of how fortunate I am to do important and purposeful work and to do it with people for whom I have great respect and admiration.
I thank you for your membership and your continued support of PURE and wish you a safe, healthy and prosperous year ahead.
President and CEO