Florida Citizens Property Insurance Corporation Risk-Transfer Could Include Private Reinsurance Market, Catastrophe Bond
Jan 5, 2012
The following article was published in PropertyCasualty360º on January 5, 2012:
Fla. Citizens Risk Transfer Could Include Private Re Market, Cat Bond
By Chad Hemenway
Florida Citizens Property Insurance Corp. is considering the use of private reinsurance, and its risk-transfer plan this year could also include the issuance of its first catastrophe bond.
Spokeswoman Christine Ashburn says the board of the state-backed insurer—which has grown to become Florida’s largest insurer of property—has “supported a long-term buying approach—becoming a regular buyer” of private reinsurance, instead of relying solely on the Florida Hurricane Catastrophe Fund, which is in the midst of shrinking.
“Our strategy now includes becoming a consistent buyer,” Ashburn adds.
Additionally, those counted on to make financial decisions at Citizens are “assessing the opportunity to become involved” in issuing a catastrophe bond.
“From what I understand, for whatever reason, the numbers seem to be in a good place for this year,” Ashburn says.
Citizens hopes to move forward with a recommendation for its risk-transfer plan sometime in March or April, she adds.
Meant to be the state’s insurer-of-last-resort, Citizens has been, and will again find itself, in the spotlight asFlorida’s Legislative Session begins Jan. 10. The insurer has grown too large, and has maintained that status despite legislative efforts to reduce Citizens’ exposure to loss. The insurance industry and some lawmakers are again looking to find ways to shrink Citizens this year.
Prior legislation has given the go-ahead to gradually begin increasing rates after years of frozen rates, and steps were taken to make it more difficult for homeowners to get into, and stay in, Citizens.
Ashburn says Citizens has requested, and has been approved by state regulators, to take additional steps to reduce its size and exposure.
For instance, Citizens will begin to send nonrenewal notices on wind policies for homes valued more than $1 million. The home-value threshold was already lowered to the same level for personal property policies. In addition, the insurer will no longer writer builders-risk policies and made some changes to the deductibles associated with sinkhole endorsements on policies.
Ashburn says its leadership has recreated a depopulation committee, charged with finding ways to get primary insurers interested in taking policies from Citizens. Dozens of domestic insurers had formed to take policies several years ago but the pace has slowed.
“We are definitely taking a look at everything in order to try to make headway in reducing our size and [probable maximum loss],” Ashburn says.
Even what Citizens pays for legal costs has come under scrutiny. OneFloridalawmaker has suggested Citizens find ways to lower the more than $2.4 billion it spent the last five years in litigation before legislators look to allow Citizens to reduce coverage options and raise rates.
Litigation rates related to sinkhole claims are much higher than for other claims, Ashburn says. Because Citizens is a government entity with the ability to assess mostFloridapolicyholders, the insurer has the responsibility “to assure that the claim is resolved for the proper amount based on the coverage provided under the insurance policy,” Ashburn says.
“All but a small percentage of Citizens’ claims are paid without the need for litigation,” she adds. “For claims where disputes do arise, they are based on the specific facts of the individual case.”