Florida’s biggest insurance carrier says it needs to shore up its finances before hurricane season

Mar 30, 2011

The following article was published in the Florida Tribune on March 30, 2011:

Florida’s biggest insurance carrier says it needs to shore up its finances before hurricane season

By Gary Fineout

Saying it needs to shore up its finances in advance of hurricane season, Citizens Property Insurance plans to purchase private reinsurance and borrow as much as $1 billion in the next few months.

The board that oversees the state-created carrier on Wednesday discussed the need to boost company finances in case Florida gets hits with a major storm — or endures a series of smaller storms similar to what happened in 2004 and 2005. A major hurricane could cause $22 billion in losses for Citizens, which has 1.3 million policyholders across the state.

“If there was a second storm, we would be in very serious trouble,” said Tom Lynch, a member of the Citizens Board of Governors.

Citizens Chairman Jim Malone said that he and staff from Citizens visited Bermuda earlier this month where they met with representatives of the world’s major reinsurance firms, many of whom are based in the tiny island nation in the Atlantic.

Citizens has purchased private reinsurance in the past, a spokeswoman for the carrier said. But usually Citizens has just relied on the state-backed Florida Hurricane Catastrophe Fund as a backstop. If Citizens does not have enough money on hand to pay off its claims, the carrier has the power to place assessments on insurance policies, including auto insurance policies.

But Citizens is also considering whether to borrow anywhere from $500 million to maybe as much as $1 billion ahead of the hurricane season. Citizens is expected to have a $5.7 billion surplus at the end of the year but it could need additional money because the Cat Fund only reimburses insurers after claims have already been paid.

Financial advisors for Citizens initially suggested borrowing no more than $700 million. But Carlos Lacasa, a member of the Citizens board, wanted to look at borrowing even more money, maybe as much as $1 billion.

“We don’t want to be in a position where we are scrambling to raise cash where we have a deficit,” Lacasa said.

The push by Citizens to get more money for its finances comes as the Florida Legislature debates whether or not to let the carrier raise its rates as much as 25 percent a year. Currently, Citizens rates are capped at 10 percent a year. The bills to let Citizens raise its rates cleared House and Senate insurance committees this week. But some lawmakers have complained that the Citizens legislation could hurt consumers and cause problems for the troubled real estate market in the state.

Find this article here:  http://fltrib.com/floridas-biggest-insurance-carrier-says-it-needs-shore-its-finances-hurricane-season