Posted on 19 Feb 13 by Annie George
Never mind the risk exposure of state-run property insurer Citizens is shrinking -- its board decided Thursday to spend more of its ratepayers' money, $327 million, on private reinsurance in 2013.
Travel to meet with reinsurers in the Caribbean and Europe has helped lead to unflattering stories about $600-a-night hotel rooms, wining and dining, and executive travel costs. Officials at Florida's last-resort insurer have moved to impose tougher standards on expenses, but it hasn't dimmed their enthusiasm for reinsurance.
State-created Citizens spent nothing on private reinsurance as recently as three years ago, but company officials portrayed the trend as a success. Reinsurance is coverage that insurers can buy from other companies.
President Barry Gilway on Thursday said top officials recently met with 60 reinsurers and syndicates.
"I was absolutely amazed at the incredibly positive reaction we received from the market," Gilway said.
The board approved the concept of putting $327 million of ratepayers' money in 2013 into reinsurance premiums, which go to offshore and Wall Street financial interests. Details of the arrangements come up for approval in March.
Reinsurance would help reduce the risk of assessments to Citizens customers and others in the rare instance of, say, a once-a-century megastorm. It would provide $1.75 billion of coverage for Citizens in 2013, up from $1.5 billion last year.
But Citizens does not pose a risk of assessments in most storm scenarios now.
Florida's largest property insurer has more than $6 billion in surplus and close to $20 billion in claims-paying resources including the state's Cat Fund -- which functions like private reinsurance at typically less than half the price.
No assessments are projected in 2013, for example, with a repeat of the multi-storm 2004 season, or the 2005 season with Hurricane Wilma.
The increased spending on reinsurance means Citizens is on track to contribute 23 percent less to its claims-paying surplus than it did last year.
Unlike private reinsurance, money put into the surplus is available year after year to grow and act as a reserve to pay claims. Money spent on reinsurance premiums simply goes into the pockets of private reinsurers if not needed in the contract period, typically one or two years.
Under contracts in effect last year involving underwriter Goldman Sachs, for example, there was a less 3 percent chance reinsurance coverage would be used. And it wasn't.
The $6 billion surplus is a major reason why Weiss Ratings of Jupiter gives Citizens an A plus for financial strength, while all other Florida-based insurers get less than recommended ratings, meaning B plus or higher in its scale.
Citizens' risk exposure is shrinking, meanwhile, thanks to programs that transferred about 277,000 customers to private carriers in recent months. A pending deal would see 31,000 coastal customers move to newly-formed Weston Insurance Co. Citizens has about 1.3 million customers, including 130,000 in Palm Beach County.