Citizens Property Insurance slows loan program, wants independent review
Oct 9, 2012
The following article was published in The Florida Current on October 9, 2012:
By Gray Rohrer
Responding to calls from lawmakers to more thoroughly vet a program to provide private insurance companies with low-interest loans as incentives to take over their policies, Citizens Property Insurance Corp. officials opted Tuesday to take a more deliberate approach.
Citizens officials had previously said they needed to implement the program by December so companies could review the policies taken over from Citizens and assess how much reinsurance they would need for the 2013 hurricane season. Even as Citizens CEO Barry Gilway said he would ask the board to contract with an independent firm to analyze the loan program, he also asked for an emergency procurement so as not to dampen the interest of private companies.
“It is vital that we ensure a comfort level with policyholders and state leaders are comfortable with the due diligence that has been performed before any consideration can be given to moving forward. For this program to have an impact on the 2013 season we would have to be ready to go in the very early part of 2013 (January or February),” Citizens spokeswoman Christine Ashburn wrote in an email.
Gilway and other Citizens staffers asserted that the surplus notes program was given a thorough review, has sound financial requirements for participating companies, and would benefit policyholders.
But after incoming House Speaker Will Weatherford, R-Wesley Chapel, sent a letter to Citizens Chairman Carlos LaCasa last week detailing his concerns about the program, Citizens is pausing for a review of the loan program.
In his letter, Weatherford questioned whether Citizens has the legal authority to implement the program, and expressed his concern that the Legislature wouldn’t be able to review it before it was implemented. Chief Financial Officer Jeff Atwater has voiced similar concerns, and lawmakers such as Sen. Mike Fasano, R-New Port Richey, and Rep. Frank Artiles, R-Miami, are vehemently opposed to the program. Artiles has even vowed to file an injunction against the loan program if it is implemented.
Gov. Rick Scott, who called on Citizens board members last year to take necessary steps to reduce the exposure of the state-run company that has become the largest property insurer in Florida, said the Citizens board has the authority to implement the surplus notes program without legislative review.
“I think the structure is there’s a board and this is in the purview of the board. The board has the right to make a decision,” Scott told reporters Tuesday.
Under the program, up to $350 million would be loaned to private companies over a 20-year period, but the companies would only have to keep the Citizens policies for 10 years. After three years, the companies could raise the rates on those new policies above the 10 percent cap imposed on Citizens. Also, companies could be forgiven for up to 20 percent of the principal of the loan each year for the first five years if a catastrophic loss is incurred.
Citizens officials say they think the program has the ability to reduce its total maximum loss in a given year by $2 billion and note that the cost to transfer the same amount of risk that could be achieved under the program could reach $2.4 billion in reinsurance costs.
View the original article here: http://www.thefloridacurrent.com/article.cfm?id=29714075