Insurer to Take 31,000 Commercial Wind Policies from Florida’s Citizens

Florida’s state-backed property insurer has approved a plan to shift 31,000 commercial wind-only policies to a new private insurer.

The board of Citizens Property Insurance Corp. approved the plan earlier this week. Newly-licensed Weston Insurance Co. will be permitted to remove the policies from those that are currently in the Citizens coastal account. The take-out policies will includes 23,000 personal residential wind-only policies, 3,000 commercial residential wind-only policies and 5,000 commercial nonresidential wind-only policies.

Citizens has a total of 1.3 million policyholders in all of its accounts.

While Citizens has had other depopulation agreements, this marks the first removal of commercial wind-only policies.

Weston is a newly incorporated domestic insurer that received its license to do business in the state late last year. In January, the insurer received regulatory approval to remove up 31,000 Citizens policies, but Citizens still had to approve the deal for financial reasons.

If all goes as planned, the policy assumptions will occur between March and June, with the final removals completed by May 31, 2013.

The takeout-plan is projected to result in a $30 billion reduction in Citizens exposure and an $840 million reduction in losses in its coastal account in the event the state suffers a one-in-100 year storm. The deal also promises to reduce the potential assessment burden on all state policyholders by $500 million or 11.9 percent.

As part of the deal, Weston has agreed to follow the 10 percent glidepath limit on rate increases for three years and to assume the policies for three years. Also, if Weston makes an offer of coverage that is rejected by the homeowner or agent, Weston has to go back to Citizens and look for similar policies to replace the one that was rejected.

Citizens President Barry Gilway touted the agreement with Weston as a landmark deal since commercial wind-policies account for some of Citizens greatest exposure.

“Citizens is very excited about this first ever depopulation of commercial wind-only policies from out coastal account,” said Gilway.

Gilway said the terms of the deal should give consumers some incentive to accept Weston’s offer instead of opting out of the deal.

“The price and renewal benefits provisions of the Weston take-out agreement give policyholders the certainty needed to accept the benefits of private-market coverage,” said Gilway.

Central to the plan is a quota share reinsurance arrangement between Weston and Citizens.

Under the policy assumptions by Weston, the insurer will be on the hook for all claims even though they might have not actually assumed the policy. In exchange, Weston will receive the unearned premiums on all those policies dating back to Dec. 21, 2012. The unearned premiums will be placed into a trust that Weston cannot access until 45-days after the insurer has assumed the policy.

The quota share agreement will give Weston more time to collect monies to pay claims before the start of the June 1 hurricane season. The financial arrangement will be in-force between Dec. 21, 2012, when the insurer received its license to do business, and May 31, 2013, when the last policy removals are set to occur.

Weston counsel Austin Neal praised the deal that he said would not only help meet the depopulation goal but also serve as a roadmap for other insurers to remove policies.

“The deal will also encourage further investment of long-term private capital in the Florida property insurance market, which will lead to greater availability coverage and benefits all Floridians,” said Neal.

While Gilway and Neal are optimistic that the Weston deal might serve as template for other such deals, it is unlikely to start a trend. In a document by Citizens staffers, they note the lack of other insurers lining-up to remove these types of policies.

“Citizens has not been advised of any other parties that wish to remove commercial-wind policies from the coastal account, which indicates there is little or no interest in removing these high exposure wind-only policies,” stated the report.

R Street Institute Florida Director Christine Camara praised the deal for helping Citizens shed some of its exposure while lessening the possibility of future assessments on policyholders.

Camara, however, said that Citizens is still seeing thousands of applications coming through the door every day and called for lawmakers to act.

“The success of this and future take-out agreements depends on meaningful reforms by the legislature to stop the current influx of new policies into Citizens,” said Camara.