28 April 2014 Insurance

Citizens boosts protection with cheap reinsurance

Citizens Property Insurance Corporation, the Florida not-for-profit insurer, has approved a $3.1 billion risk transfer programme for the 2014 hurricane season designed to make the most of the current cheap cost of reinsurance in both the traditional and alternative markets.

The package, which includes its planned $1.5 billion Everglades Re cat bond, means that Citizens has increased its reinsurance protection by nearly 70 percent from previous levels.

After these new risk transfer transactions are closed, Citizens will have approximately $3.1 billion in reinsurance available in the event of a major storm or series of storms this hurricane season.

The insurer said that the increase in its two-pronged risk transfer programme, using both traditional coverage and cat bonds, was designed to capitalise on what it described as favourable market conditions in the reinsurance space to “dramatically increase reinsurance coverage at a lower price”.

The 2014 $1.5 billion Everglades Re cat bond is the largest single catastrophe bond issuance in history. It complements an outstanding $250 million catastrophe bond issued in 2013. The 2014 transaction is also unique for Citizens in that it provides coverage on an annual aggregate basis over the next three years, protecting the insurer from multiple smaller storms.

Citizens has also bolstered its participation in the traditional reinsurance market with the expected purchase of approximately $1.3 billion in coverage for the 2014 hurricane season, including approximately $750 million that covers aggregate losses in the event of multiple storms.

The reinsurance package will cost Citizens approximately $300 million in 2014, roughly equal to the amount spent in 2013 for $1.85 billion in reinsurance coverage.

It said the cost savings have been brought on by sustained global interest in catastrophe bonds and Citizens’ continued efforts in these markets. The Everglades 2014 catastrophe bond was priced at a rate on line of 7.5 percent, less than half the 17.75 percent charged for the first Everglades bonds issued in 2012.

Chris Gardner, chairman of the Citizens Board of Governors, said: “This is incredible progress and the result of a lot of hard work. Essentially, in the last three years, we have reduced the risk to our taxpayers of an assessment by more than $9 billion, or approximately 80 percent.”

Jennifer Montero, the chief financial officer of Citizens, said: “We’ve been able to capitalize on favourable market conditions across the board to maximize our 2014 risk transfer programme. Such market conditions have allowed us to exceed our initial expectations in regard to the level of reinsurance coverage at the most efficient pricing.”

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