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Florida Lawmakers Pressing Citizens to Delay Implementing Surplus Note Program

Source: A.M. Best

Posted on 09 Oct 2012 by Neilson

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CitizensCitizens Property Insurance Corp. is under pressure from state lawmakers to delay a scheduled December start of its $350 million surplus note program, which the state-run insurer created to reduce its risk pool.

Citizens tentatively approved plans to depopulate its risk pool in early September, issuing one-time loans totaling about $350 million to selected private insurers in the state. Companies receiving loans would have to remove blocks of policies in order to reduce Citizens' exposure by $5.5 billion during the next 10 years. Loans are to be repaid with interest over 20 years.

But in recent days, Citizens' President and Chief Executive Officer Barry Gilway has received letters from state House Speaker-Designate Will Weatherford and Rep. Frank Artiles, both Republicans, seeking to delay implementation.

Weatherford wrote to Gilway on Oct. 5, asking Citizens to delay final approval of the program and its scheduled December implementation until lawmakers can conduct hearings and determine whether Citizens has the authority to enact the plan.

In addition to questioning Citizens' statutory authority to run the program, Artiles' Sept. 28 letter said Citizens' program is allowing some participating companies to take Citizens' best policies, while others will have to take Citizens' policies that lack assuming forgivable loans. Artiles wrote that several of the eligible takeout companies have suffered underwriting losses in the past five years and he personally has asked the Office of Insurance Regulation to audit participating companies before they can receive any surplus note program funds.

But Gilway wrote in response to Artiles that the surplus notes program "has been designed to complement, not compete with, Citizens' traditional depopulation efforts. We agree that companies that receive loan incentives through the surplus notes program should not remove a policy that another company is willing to take without loan incentives." Already having delayed the program once from its original November start date back to December would help companies in the traditional depopulation program remove policies before the program begins. Gilway wrote that program provides incentives for companies to participate if they are willing to take out higher-risk policies.

About 20 companies would qualify to apply for the program if it began today, Gilway wrote.

Artiles wrote that he and other members of the Legislature are willing to work with Citizens, but that Citizens should expect considerable resistance if it continues to press "a one-sided plan to waste $350 million of surplus and $400 million in premiums."

In September, the state auditor general issued a report highlighting Citizens' mistakes with underwriting and various barriers to its depopulation effort. The OIR on Sept. 6 approved the removal of 150,000 policies from Citizens by four private insurers. Before this announcement, 84,339 polices had been taken out this year, which could make it the largest take-out year since 2008, the OIR said (Best's News Service, Sept. 7, 2012). Artiles argued in his letter that these takeouts meant Citizens likely would meet its 300,000 goal and therefore did not need to use $350 million to do so. Later in September, American Integrity Insurance Co. became the fifth company to participate in the round of takeouts, assuming up to 50,000 policies. Florida Peninsula Insurance Co. has been approved to assume an additional 10,000 policies and was previously approved for 35,000. If all of the policies seek break with Citizens, it will shed 210,000 in the latest round of takeouts and nearly 300,000 for the year, although Florida law allows policyholders to opt out of their assumption from Citizens.