By Chris Munro

Feb 26 - (The Insurer) - The Baldwin Group has secured regulatory approval to launch a Texas-domiciled reciprocal insurance exchange to support its builder-sourced book of homeowners business, with the company’s specialty MGA division serving as the new unit’s attorney-in-fact $(AIF)$.

On a call to discuss Baldwin Group’s fourth-quarter and full-year 2024 earnings, CEO Trevor Baldwin said the company was in the process of finalising a third-party-led capitalisation of the reciprocal.

The plan is for the startup to then begin underwriting business two to three months thereafter, Baldwin said.

“The approval and forthcoming launch of our debut Baldwin-sponsored reciprocal exchange represents a meaningful milestone in our continued journey to vertically integrate across the value chain and bring innovative third-party risk capital platforms to market in support of more efficient risk transfer outcomes for our clients,” he added.

The launch of the reciprocal exchange comes as Baldwin Group continues to integrate the circa $200 million book of builder-sourced homeowners business it acquired from QBE in 2022 as part of its deal for Westwood Insurance Agency.

On the call, Baldwin said QBE will continue to support the builder-sourced homeowners program past May 1, 2025. However, the executive confirmed that Baldwin Group continues to work to transition that book to other capacity providers.

“We're incredibly excited about the reciprocal exchange that we're in the process of starting up and how that will provide an innovative long-term source of capacity for us to continue growing the builder book over time,” Baldwin said.

“Over time, we also anticipate that, that reciprocal will provide for overall gross economics more consistent with the historical economics we had for QBE,” he added.

Baldwin told analysts that the company’s underwriting, capacity and technology solutions unit recorded organic growth of 27% in 2024, with the division ending the year with $1.1 billion of gross premiums written.

As Baldwin noted, its MGA business did face losses from the recent California wildfires.

“While California property represents less than 10% of our overall premium base in the MGA, our E&S homeowners portfolio has some exposure to the recent fires that will deliver losses to our reinsurance partners,” he said.

More specifically, Baldwin said the company has two E&S homeowners programs that were impacted by the fires.

“While we do not directly bear any of the costs of those losses, it remains to be seen what impact the event will have on reinsurance pricing for wildfire more broadly and what, if any, impact that will have on terms and conditions in our June 1 reinsurance renewals,” he explained.

“When you look at the current industry estimates of somewhere between $30 billion and $50 billion, if you take the upper range there, this is tracking to be a top-three catastrophe loss event of all time that occurred in the first two weeks of the year, on what the reinsurance market has historically considered to be a secondary peril and for which a loss that will be much more heavily absorbed by the reinsurance market than, say, a Florida hurricane would.

“And so while our California exposure overall is in line with expectations for both programs, I'd say it remains to be seen how reinsurance pricing for the market more broadly shakes out.

“And to the extent it goes up, that could put pressure on our gross commission rates for those two programs on the June 1 renewal.”

Baldwin said it remains unclear specifically what the impact of the fires could be.

“There's a world where you take adequate rate on a primary basis to fully absorb it. And there's also a world where there's cost increases that are passed through and that have temporary impacts,” he said.