Citizens to Borrow Nearly $1 Billion Ahead of Hurricane Season
May 12, 2011
The following article was published in The Sunshine News on May 12, 2011:
Citizens to borrow nearly $1 billion ahead of hurricane season
By Gary Rohrer
To prepare for a hurricane season, homeowners typically buy shutters, stock up on batteries and water and recheck the generator.
Property insurers, on the other hand, need to stock up on cash.
Three weeks before the official start of the hurricane season, Citizens Property Insurance Corp., the state-run company and Florida’s largest insurer with 1.3 million policies, is set to borrow nearly $1 billion to bulk up its surplus in case of a hard-hitting storm.
During a teleconference meeting Wednesday, Citizens’ board of governors voted to issue $900 million in bonds in advance of the possibility of a catastrophic hurricane this season.
With time winding down for the June 1 start of hurricane season, board members thought it was imperative to start the process for getting to the bond market, since statutory restrictions mean the bonds won’t be issued until June, and the finalization of the bond issuance can’t happen until Citizens’ July board meeting.
But one board member, Carlos Lacasa, thought the issuance of $900 million in bonds deserved a face-to-face meeting and more thorough vetting than Wednesday’s teleconference meeting. He cited a similar rushed vote on a bond issuance two years ago.
“I don’t understand why the board is being put into that position for a second time in a row,” Lacasa said.
According to Citizens’ documents, a 100-year storm costing nearly $15 billion would run through their high-risk account reserves, a surcharge to Citizens’ policyholders, regular assessments and incur more than $5 billion in emergency assessments.
The same storm would induce a surcharge for Citizens’ private and commercial accounts, but would not exhaust its regular assessments.
The board also approved the purchase of $500 million of re-insurance from private companies, transferring more risk out of the state of Florida, where the state government’s catastrophe trust fund has been the traditional backstop in the event of a costly hurricane.
Chairman James Malone praised the purchase, but bemoaned the lack of movement on legislation during the recently concluded session that would have allowed Citizens to recover some of the cost of re-insurance through rate increases.
“We all had great hopes that the legislative session was going to provide us the ability to raise our rates to the appropriate levels,” Malone said.
Two bills that would have allowed Citizens to raise rates as high as 25 percent instead of the maximum 10 percent, and push out policies covering property valued at more than $1 million, died as lawmakers shied away from measures that would increase costs on homeowners in a dismal economy.
A varied coalition of interest groups supported the bills, from the tax and budget-minded Florida TaxWatch worried about the potential cost to taxpayers statewide in the event of a catastrophic storm, to environmental groups concerned with growth along the coast that impacts wetlands and water systems.
“We firmly believe that reckless coastal development and artificially low premiums in the most hazardous areas of the state must come to an end, and that it is of the utmost importance that we protect Florida’s coast wetlands and barrier islands which serve as our first defense against storm surge floods and high winds. (Wednesday’s) announcement is a step in the right direction as we brace for what may be a very active storm season,” said Jay Liles, policy consultant for the Florida Wildlife Federation, in support of the re-insurance purchase.
Malone said the rate freeze of 2007 to 2009 imposed on Citizens prevented the company from setting actuarially sound rates, leaving it unbalanced compared to the private market.
“(Private) companies build (re-insurance) costs into their base rates. If we don’t start that now, then we’ll get further and further and further behind the economic model that continues to put our company at risk,” Malone said.