Results mixed for Citizens’ loan program

May 9, 2008

Miami Herald–May 09, 2008


The 13 insurers that took advantage of a low-cost loan program to pump up capital and write thousands of new policies are still sitting on millions of unused dollars.

Eleven of the companies haven’t been able to write all the policies the program required. Six companies are paying stiff interest penalties because they haven’t written as many policies as promised.

A variety of factors are to blame. The recession in the housing market has dried up the demand for new policies. There’s increased competition from Citizens Property Insurance, where rates have been frozen for nearly 18 months. There’s also more competition from other insurers in the state that have been writing more policies. Plus, Citizens’ static rates are keeping some insurers from raising their rates.

”Those factors make it more difficult to write the business we were expecting to,” said Don Cronin, president of United Property & Casualty in St. Petersburg.

United got a $20 million loan. While the company is writing policies, including coverage in Miami-Dade, Broward and Palm Beach counties, the company hasn’t met the mark set out by the capital build-up program.

All companies receiving loans were expected to leverage their surplus, writing $2 of net premium to every $1 of surplus.

Insurance experts said that’s an aggressive level to reach. The new insurance law softens those requirements so meeting the program’s criteria would be easier and companies could avoid penalties.

Created in 2006 to bolster insurers in Florida, the program could be a double-edged sword this time. Two years ago, the money was taken from extra tax revenue generated by the hurricane-rebuilding effort after the 2004 and 2005 storms.

Now, the new insurance law passed last week would take $250 million from Citizens’ surplus. The insurer expects to have more than $4 billion on hand by the end of the year if no major storm hits the state.

The loans would be paid back to Citizens with interest over 20 years. The new law requires Citizens to transfer the funds later this year if its surplus exceeds $1 billion, but it won’t take money from the reserves set aside to cover windstorm claims.

Still, some in the insurance industry don’t think it’s a good risk to dip into Citizens’ capital, especially because the insurer has $485 billion in total exposure.

Last week, Citizens’ board of governors voted unanimously to send a letter to Gov. Charlie Crist, explaining why tapping Citizens’ reserves would be a bad idea.

Bruce Douglas, the board’s chair, noted that the insurer’s bond rating — which influences how much interest the company pays on its borrowings — could be jeopardized.

The program is good for homeowners because it has provided more capital to home-grown companies to write more policies. The 13 companies tapped into nearly $250 million, which was matched with equal funds from private investors. The Florida Insurance Council estimates that would translate into 1.7 million new policies. ”We think recharging it is really important,” said the council’s Sam Miller.

Agents say some of the companies that were funded such as United Property & Casualty, St. Johns Insurance, American Integrity, American Capital Assurance and Olympus are writing policies.

But many aren’t keen on taking money from Citizens’ reserves for this program.

Crist could veto the line item on drawing the money from Citizens for the capital build-up program that’s included in the state budget. Neither the budget nor the new insurance bill has reached his desk.