Louisiana’s state-run property insurer of last resort is $56 million in the red, after it covers claims for Hurricane Isaac and settles class-action lawsuits for improper handling of past storm claims.
Steve Cottrell, chief financial officer for the Louisiana Citizens Property Insurance Corp., delivered the news on Nov. 8 to the board that governs the insurer.
“Our liabilities are $56 million more than our assets,” he told the board of directors, which approved the latest financial reports.
Citizens board agreed to raise its commercial coverage rates by more than 45 percent across-the-board statewide. Nearly all of the 5,700 commercial property policies are in the New Orleans area and coastal parishes.
The new rates will take effect Feb. 1, Cottrell said.
The company provides property insurance mostly to coastal Louisiana homeowners and businesses that can’t get insurance through the private market.
Cottrell said the company has enough cash to pay Isaac claims and has a bank line of credit available if Citizens runs into cash-flow problems.
“We’re not going to run out of money,” he said.
No decision was made about how to close the deficit. Cottrell said Citizens officials will present options at the next board meeting.
Among the options available to Citizens: charging an assessment on private insurance companies around the state for each property policy. The private insurers would pass that cost on to customers. Another possibility could involve borrowing money through a bond sale.
Cottrell said the costs of several legal settlements, along with Hurricane Isaac’s blow to southeastern Louisiana in August, will drain all the company’s reserves.
“This company’s just not big enough to absorb these kinds of expenses,” Cottrell said.
Isaac’s costs to Citizens have reached $89 million and are expected to hit $100 million, said Quin Netzel, vice president and chief claims officer for the company. While reinsurance will cover a slice of those costs, Citizens must pay for the first $75 million, Cottrell said.
In addition, the company paid a $104 million judgment in July to thousands of policyholders who sued over the slow adjustment of claims after hurricanes Katrina and Rita in 2005. Cottrell said another $60 million will be paid to settle two remaining class action lawsuits tied to the company’s handling of claims after those storms.
“How are we ever going to catch up?” asked Treasurer John Kennedy.
“That is the dilemma,” Cottrell replied.
He said the company continues to try to beef up its own insurance to cover larger shares of the costs after a storm, and he said Citizens could build up reserves if the state can go several years without a major event.