Miami Herald: Citizens Property Insurance offers $2 billion of tax-exempt bonds

Mar 15, 2010

This article was published by the Miami Herald on March 15, 2010.


Bloomberg News

Florida’s government-owned Citizens Property Insurance Corp., bracing for an “above-normal” hurricane season, plans to sell $2 billion in tax-exempt bonds as early as this week.

The state’s largest real-estate underwriter comes to market amid forecasts for as many as five hurricanes to strike the U.S. mainland this year. The prediction by State College, Penn.-based AccuWeather last week compares with two to three such storms in a typical season, June 1 through Nov. 30.

Citizens will sell senior secured obligations, including $400 million in floating-rate notes and $200 million in short-term securities, Standard & Poor’s said in a March 5 statement.

Some private carriers withdrew from Florida’s residential market after record losses in 2004 and 2005.

Yields on top-rated, 10-year general obligation bonds have held within 2 basis points of 3 percent for more than two weeks, the lowest since Dec. 10, according to a Municipal Market Advisors’ daily survey. A basis point is 0.01 percentage point.

“I’m feeling cautiously optimistic, assuming the financial markets continue what we’re seeing,” said Sharon Binnun, the chief financial officer of Tallahassee-based Citizens, speaking in a telephone interview.

Tax-exempt issues reached a two-month high last week as states and municipalities took advantage of lower yields and higher demand fueled in part by sales of taxable, federally subsidized Build America Bonds.

Citizens last sold bonds in April, when it fell short of a planned $2 billion issue, bringing only $1.64 billion to a market plagued by high yields and weaker demand for lower-rated securities. S&P rates Citizens A+, its fifth-highest, and Moody’s ranks it A2, the sixth-highest rating. Yields on AAA rated 10-year bonds reached 3.23 percent on April 27, when Citizens sold.

The new deal will add to reserves for claims during the hurricane season beginning June 1. Citizens has issued one million policies, which make up 22 percent of the Florida market, according to a Moody’s Investors Service statement.

Citizens has benefited from four years without major hurricane damage to the state, Moody’s said. The ratings company raised its outlook on Citizens’ $2.8 billion in outstanding bonds to stable from negative on Feb. 17.

Citizens won legislative approval last year to raise rates for the first time in two years, Moody’s said. The insurer can choose to levy emergency assessments on almost all insurance policies in Florida to pay off its debt if needed.

Florida insurance debt can be difficult to sell because of hurricane season uncertainties, said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia.

“Florida insurance is always kind of a tricky issue to market,” LeBas said. “While it may have a solid credit rating, they’re often treated like high-yield securities.”