Florida’s Citizens Eyes Risk Transfer While Lawmakers Plot Changes

Florida’s largest homeowners’ insurer has set the goal of moving at least $1 billion in risk back to the private capital markets while looking to lawmakers to make statutory changes that will assist the insurer in its depopulation efforts.

Speaking before the Florida Cabinet, outgoing Citizens Property Insurance Corp. President and CEO Scott Wallace said the insurer is intent on focusing all of its efforts on depopulating the insurer and reducing the exposure it represents to all Florida policyholders.

Currently, the insurer has 1.47 million policies in force with a total exposure of a half trillion dollars.

“We are doing everything we can as quickly as we can to focus on our goals,” said Wallace. “Clearly, there is a lot of work to be done to reduce the size and significance of Citizens.”

Wallace said the insurer is taking several approaches to achieving depopulation and reducing its financial exposure.

The step with the most immediate impact could be if Citizens is successful in transferring at least $1 billion in risk back to the private capital markets.

Following last year’s successful purchase of $575 million in private reinsurance and $900 million in pre-event catastrophic bonds, Wallace said the Citizens has set a goal of transferring at least $1 billion in exposure back to the private capital markets by the end of the year.

Meanwhile, the insurer has implemented some coverage reductions.

As of Jan. 1, the insurer is no longer covering properties valued at more than $1 million in its coastal account. It has also implemented a 10 percent mandatory sinkhole deductible and reduced its personal liability coverage from $200,000 to $100,000. Other coverage changes are slated to be implemented later this year.

On the depopulation front, Wallace said that 17,000 policies are slated to be removed from the insurer on Feb. 14, by the Boca Raton-based Peninsula Insurance Co.

Citizens has reactivated its depopulation committee, which will make a series of recommendation at the insurer’s board of governor’s meeting next month.

The committee is expected to consider eliminating ceding commissions and evaluating methods to package Citizens’ policies so they are more attractive to private insurers.

Chief Financial Officer Jeff Atwater questioned whether there is any other interest from private insurers and what concerns are they expressing.

Wallace said the insurer is in the preliminary stages of meeting with some investors, but it is going to take time for the market to be willing to take on large numbers of policies.

When questioned why by Atwater, Wallace cited that in effect, it will take national companies time to trust the state’s regulatory environment. In the past several years, insurers have seen changes such as a Citizens’ rate freeze, which was later lifted in favor of a 10 percent annual rate increase.

In 2008, private companies assumed 385,000 policies from Citizens but since then the number of assumed policies has dropped significantly from 150,000 policies in 2009 to just 59,700 policies in 2010.

“The one concern I hear in the marketplace is the lack of consistency through the years,” said Wallace.

Citizens is supporting a number of reform bills currently being considered by state lawmakers, including one that is moving quickly that would allow surplus lines carriers to remove policies directly from Citizens. The bill is being backed primarily by GeoVera Specialty Insurance Co., which has operated in the state since 1994 and currently has 30,000 policyholders around the state. The company primarily offers residential homeowners polices and earthquake coverage in the southeast and Midwest.

Citizens is also supporting several other bills that have yet to gain much traction in the legislature.