Florida’s Citizens Property Insurance Depopulation Committee Reviews Progress, Surplus Notes Program Analyses

May 29, 2013


Because of its aggressive depopulation efforts, the outlook for Citizens Property Insurance Corporation (“Citizens”) is “very bright” and “very positive” compared with what its future seemed to be just one year ago, Citizens President and CEO Barry Gilway told Citizens’ Depopulation Committee (“Committee”)  during its meeting today, May 29, 2013.

To view the meeting materials, click here.

Mr. Gilway told Committee members that Citizens’ policy count would have ballooned to 1.8 million policies, with $12 billion in unfunded liabilities if no policy transfers to the private market had taken place during the past year.

In that time, Citizens has shed 430,000 policies through depopulation efforts, reducing its totAal exposure by $130 billion, he said.  By the end of the 2013 Hurricane Season, depopulation agreements will have removed a total of 445,000 policies.

Comparatively, Citizens’ approximate $10.4 billion in unfunded liabilities in 2010 has been reduced to $3.8 billion in 2013, equating to a 47.2 percent reduction from $7.3 billion one year ago, Mr. Gilway said. 

“Marry that to the fact that we have the (CS/SB 1770) Clearinghouse approval and there are huge opportunities being presented,” he added.  

Mr. Gilway had this message for private insurance carriers:  “There remains lots of well-priced business that is still available in Citizens.”

He also lauded Citizens’ Chief Financial Officer Sharon Binnun for her “amazing” work, saying he had never worked with a financial team that brings to bear “this level of capability.”

In her update on Citizens’ depopulation efforts, Ms. Binnun explained that, during the period from June 30, 2012 to June 30, 2013, Citizens’ policy count dropped by 16.7 percent, its overall exposure decreased by 26 percent, and its probable maximum loss (“PML”) went down 15 percent–dropping from $23.5 billion to $19.9 billion.

“I think those numbers speak for themselves,” she said.

She said Citizens evaluated what happens when a policy is transferred to a private insurer and how long it remains with that insurer.

Between 2007 and 2011, 761,301 policies had been removed from Citizens.  Of those, 291,867-or 38.3 percent-returned to Citizens, Ms. Binnun stated.   However, of those policies that were returned to Citizens, 134,578or 64 percent came back because the insurers became insolvent.

With so much business being transferred out of Citizens, some might wonder whether any good policies remain, she conjectured.

Fifty-nine percent of the 719,360 policies left in Citizens’ Personal Lines Account (“PLA”) are properly priced, she said.  Forty-one percent of these policies have a loss ratio over 100 percent, which means Citizens loses money on them, she added.

“Should someone participate in the (CS/SB 1770) Clearinghouse or should someone participate in depopulation?   It would seem to me that would be a great promotion for depopulation,” Ms. Binnun noted.

Mr. Gilway also said that he expects takeout companies to cherry-pick policies.

“(Takeout companies) should be identifying the very best policies and remove those policies from Citizens,” he stated.  “If I was a CEO on a depopulation company, I would absolutely select the best policies.”

Citizens Chair Carlos Lacasa wondered if Citizens’ mission inadvertently created a “schizophrenic situation.”  He explained that part of its mission is to reduce the risk of assessment on Florida taxpayers by pushing out policies, while also building up surplus in case of a storm.

Mr. Gilway said he believes the largest driver relative to the elimination of Citizens’ assessment potential is the reduction of policies, as well as PML.

“I believe in the event of a storm, we are going to be heroes,” Mr. Gilway said.

Ms. Binnun also briefly summarized historical dates in Citizens’ depopulation, which showed that, during the First Quarter of 2013, private market coverage was offered to 73,861 policyholders, 21 percent of whom “opted out” or declined to switch coverage.

Comparably in 2012, private market coverage was offered to 403,902 Citizens policyholders, with 24 percent of them opting out.   Between 2008 and the First Quarter of 2013, approximately 33 percent of policyholders opted out of private coverage.

According to Ms. Binnun, as of June 30, 2013, eight private insurance companies will have assumed 150,000 policies, thereby removing an additional $58 billion exposure from Citizens.

In 2012, seven private insurance companies assumed 277,002 policies, equating to $75.9 billion in risk.  Citizens retained 1.3 million policies for the same period in 2012, keeping $429.4 billion in risk.

Comparably in 2011, three private insurers took over 53,577 Citizens policies, assuming approximately $12 billion in risk, while Citizens retained nearly 1.5 million policies and the accompanying $510.7 billion in risk, she noted.

Citizens has embarked on an aggressive and ongoing effort to divest itself of policies and reduce exposure.

Last week, Citizens voted to pay up to $52 million to Heritage Property and Casualty Insurance Company  (“Heritage”) to take over 60,000 policies as part of Citizens’ ongoing depopulation effort.  In February, Citizens approved another takeout deal, agreeing to pay Weston Insurance $63 million to remove 30,000 policies.

The Weston takeout marked the first time in Citizens’ history that commercial wind-only policies were being removed from the insurer-of-last-resort’s high-risk Coastal Account.  That takeout was billed as a means of reducing Citizens’ exposure in its Coastal Account by $840 million in the event of a one-in-100-year storm.

Citizens Board of Governors (“Board”) members say the Heritage deal will reduce Citizens’ aggregate estimated exposure by $14 billion and help the State-run insurer slash its losses by $280 million if a one-in-100-year hurricane were to devastate Florida.

Because Citizens can levy assessments if a big storm hits and drains its surplus, Board members say such takeouts to reduce exposure are essential.   Citizens currently has accumulated a $6.4 billion cash surplus during the six recent storm-free years.


Other Discussions During Today’s Depopulation Committee Meeting

Representatives from two firms hired to evaluate the Surplus Notes Depopulation Program (“Program”) Citizens had put on hold last December then gave brief presentations to the Committee on their findings.

A report by Alvarez & Marsal Insurance Advisory Services concludes that Citizens could potentially reduce its assessment exposure with limited financial impact of repayment risks, but noted several concerns, including the fact that Citizens would place itself at risk for lender liability.  Another key concern is that few lenders would likely participate because of the mandatory 10-year policy retention requirement.  To view the report, click here.

Another report by Goldman Sachs & Co. noted similar points and listed the following risks to the proposed Program: 

  • Participating insurers might not repay the note.
  • Participating insurers might not keep the policies.
  • Terms and conditions of the program might be difficult to enforce in court.
  • Certain terms required by Citizens, such as requiring insurers to hold policies for 10 years and replace policies first from Citizens book, might not be problematic for private insurers.
  • The risk of the Program being portrayed as “corporate welfare” creates a reputation risk for private insurers.

To view the Goldman Sachs report, click here.

Mr. Gilway said the reports were insightful and demonstrated that the Program was well-designed.  He said Citizens was unwilling to give up its stringent criteria for private insurers and, as a result, too few companies showed interest.

Ms. Binnun said the Program was conceived before the myriad successful takeouts had occurred.

“We had no way of knowing we would get out almost 300,000 policies without the Surplus Notes program,” she said.

Citizens’ Chief Insurance Officer Yong Gilroy then gave an update on the Clearinghouse, which was approved in legislation (CS/SB 1770) signed by Governor Rick Scott today.  The Clearinghouse is expected to result in a significant number of Citizens policies being transferred to the private insurance market later this year.

CS/SB 1770 involves the creation of a “Clearinghouse” at Citizens, which would be used to steer policyholders into the private insurance market.   Under the plan, homeowners insured by Citizens would be forced into the private market if a private insurer offers them a comparable insurance rate.

Mr. Gilroy said Citizens is in the process of contacting private insurance carriers to gather information, determine concerns and gauge interest.

Participation by private carriers is optional.

With no further business before the Committee, the meeting was adjourned.


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