But one month away from the start of hurricane season on June 1, the state-run insurer is not finished gathering reinsurance. It has budgeted $1 billion for reinsurance this year, and will buy the rest of its reinsurance coverage later this month.
Citizens chairman Carlos Lacasa hailed the news as “a historic day” for Florida, asserting the reinsurance would guard against the need for assessments to non-Citizens customers should damage claims from a large storm exhaust its surplus.
“It is also a testament to Citizens' financial and operations management strength, particularly in the areas of underwriting and catastrophic claims adjustment,” Lacasa said in a prepared statement.
Lacasa voted for a similar reinsurance purchase last year as a regular board member, but questioned the need for it, saying, “The risk of (needing reinsurance) is so low and the price is so high that I don't think we are getting a great value.”
The purchase of additional reinsurance from the private market, which Citizens resumed buying last year after a three-year hiatus, coupled with its surplus and state-backed reinsurance, increases the size of a storm that could wipe out its ability to pay claims, spurring assessments on its customers and non-Citizens policyholders. Fears of such assessments led Gov. Rick Scott to urge the board to implement changes in policy coverages to reduce its risk.
After six straight years without a major hurricane making landfall on Florida, Citizens’ surplus stands at more than $6 billion and it has $6.9 billion worth of reinsurance in the Florida Hurricane Catastrophe Fund, the state’s reinsurance fund. Together with its $1 billion in planned private market reinsurance coverage for this year, a hurricane or storm would have to be large enough to produce at least $14 billion in claims in order for assessments to be placed on policyholders.
By comparison, if the series of hurricanes that hit Florida in 2004 and 2005 had hit in 2011 and 2012, claims would have reached $7.65 billion. Cat Fund reserves, though, would not be used in such a scenario because a single storm would not be large enough by itself to trigger the fund's payments.
Yet Citizens is moving ahead with reductions in coverage to reduce its risk and the potential for assessments, reducing or eliminating coverage for secondary structures, eliminating builders’ risk coverage, reviewing mitigation credits and requiring new electrical work before insuring older homes.
The board voted for the changes last year, but did not begin to implement them until February. Because the changes in coverage will take effect upon renewal of a policy, some customers are only beginning to discover the changes to their policies.
Citizens officials say both the tools of reinsurance protection and coverage adjustments must be used to reduce the number of its policies and the potential risk of assessments to non-Citizens policyholders.
“I would look at it as a complement,” Citizens chief financial officer Sharon Binnun said of the two tactics.