Louisiana Citizens’ Bond Rating Upgraded

Fitch Ratings has upgraded the bond rating of Louisiana’s property insurer of last resort.

State Insurance Commissioner Jim Donelon announced that the bond rating for Louisiana Citizens Property Insurance Corp. (Citizens) has been upgraded to “A-” from “BBB” for the insurer’s $576,965,000 assessment revenue bonds, series 2006B.

Additionally, Fitch assigned an “A-” rating to Citizens outstanding $279,235,000 assessment revenue bonds, series 2006C, and declared that the rating outlook is stable, according to the Louisiana Department of Insurance.

The bonds are payable from pledged revenues, primarily emergency assessments, and the rating is derived from Citizens’ ability to levy emergency assessments on nearly every property insurance policy holder in the state for an unlimited duration and in a sizable, cumulative amount to pay debt service on the bonds.

The new rating “reflects the hard work and professionalism of Louisiana Citizens’ management team as well as the prudent stewardship of its Board of Directors,” Donelon said.

Citizen’s financial position has strengthened since Hurricanes Katrina and Rita struck in 2005. The company has not experienced significant catastrophic losses since then and has grown its claims paying resources, the insurance department said.

To achieve the new rating, Citizens also produced a fiscal 2010 comprehensive financial statement with a clean audit option and resolved prior issues with its financial management system.

While the emergency assessments are a key driver in the rating, they are not the first source of liquidity for Citizens to meet catastrophe-related claims. In the event of a catastrophe, Citizens would first tap available funds on hand, which include both accumulated surpluses, currently estimated at $150 million and a $50 million line of credit.

Citizens also maintains a reinsurance program that provides additional protection up to $500 million, net of a $75 million deductible. Together, these funds would prove sufficient to cover an approximate 1-in-70 year storm event. Should losses exceed those resources Citizens would first levy a regular assessment to insurers which would produce potential annual revenue of approximately $200 million.

Insurers can then recoup those amounts from their policy holders in subsequent years. Citizens has levied a regular assessment once in its history — following Hurricanes Katrina and Rita.

Additionally, Citizens has the authority to issue post-event bonds as they also did after the hurricanes in the amount of $1 billion. Those outstanding bonds are the subject of this ratings upgrade by Fitch Ratings.

In 2010, Citizens refinanced $300,000,000 of Auction Rate Bonds to Fixed Rate Special Assessment Revenue Refunding Bonds.

Source: Louisiana Department of Insurance

Topics Louisiana