26 October 2015 Insurance

Citizens edges towards becoming an insurer of last resort

The Florida Office of Insurance Regulation has approved the removal of up to 140,000 more personal residential policies and 2,500 commercial residential polices from Citizens Property Insurance Corporation.

It represents the latest tranche of policies to be transferred to the private sector from the state-run property insurance company in what Citizens’ spokesman Michael Peltier described as a “very successful” programme.

Companies that benefit from the latest divestiture include: Anchor Property & Casualty, Heritage Property & Casualty, Olympus Insurance and United Property & Casualty.

Citizens’ personal lines and commercial lines accounts are mostly non-coastal properties; the coastal account is coastal properties. The take-out periods are December 22, 2015 for personal residential impacting both personal lines and coastal account policies and December 15, 2015 for commercial residential.

“Initially we were seeing private companies interested only in personal lines account (PLA) policies but more recently we have seen interest from private companies regarding coastal and mobile home policies,” Peltier added.

Citizens’ job in taking the policies to the private sector was made easier by the market’s appetite for risk transfer and by utilising alternative capital structures.

“The availability of capital risk transfer has been a significant driving force in our depopulation efforts. All insurance carriers are reaping the benefits of a competitive global reinsurance market. Competition from capital markets has driven down the cost of traditional reinsurance,” said Peltier.

Following nine hurricane seasons with no major storms, six years of rate adjustments under the statutory glide path and historically low reinsurance costs, six out of 10 Citizens personal lines policyholders are expected to see rate reductions in 2016.

The companies that became Citizens were founded when many private insurers went bankrupt or fled the market after Hurricane Andrew in 1992. It was originally intended to provide affordable policies for Floridians who couldn’t get cover anywhere else.

Citizens is also under political pressure to shrink because the more policies it carries, the greater the potential financial hit on everyone who has insurance. Under state law, Citizens can bill even non-Citizens policyholders if it runs out of cash to pay damage claims after a major storm.

Floridian policyholders are still subject to surcharges for damage in the 2004/05 hurricane season.

Despite a reduction of nearly 900,000 policies since late 2012, Citizens remains the largest property insurer in Florida with 601,213 personal and commercial policies in force as of September 4, 2015.

At its peak, Citizens insured 1.5 million Floridians. It’s now on its way to returning to being an insurer of last resort.

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