State officials stalled a decision on whether Louisiana’s property insurer of last resort should borrow $100 million to help close an anticipated budget gap.
The Bond Commission, which includes lawmakers and statewide elected officials, didn’t take any action on the request from the board for the Louisiana Citizens Property Insurance Corp.
Gov. Bobby Jindal’s top financial adviser Kristy Nichols and Insurance Commissioner Jim Donelon disagree with the borrowing plan, saying Citizens has money available to cover its immediate costs.
Steve Cottrell, chief financial officer for Citizens, said he expects to have $180 million in revenue for the next year, but $250 million in expenses – and that’s without any hurricanes or other weather disasters that require hefty claims payments.
He said by June, the company will have less than $20 million cash on hand.
“If the wind blew one night, we wouldn’t be able to pay the claims,” Cottrell told the Bond Commission. “If we were a private insurance company, we would be insolvent right now.”
Citizens provides property insurance mostly to coastal Louisiana homeowners and businesses that can’t get insurance through the private market.
The $100 million in borrowing would be done by selling bonds to investors for upfront cash. But the debt would be paid off through assessments on anyone with property insurance on the private market. It also could cost the state, because the assessment can be claimed as a state tax rebate.
Nichols, the governor’s commissioner of administration and a Bond Commission member, said the bond sale would be bad for property owners and would divert tax dollars from critical needs like education and health care.
She said Citizens can access a line of credit it has available from the bank.
“Clearly you have enough cash reserves with the line of credit to meet your obligations,” Nichols said.
Cottrell said while the line is enough to meet immediate obligations, it wasn’t designed to be a short-term borrowing option. Plus, it would need to be repaid later, so accessing it wouldn’t improve the long-term financial status of the company, said Richard Robertson, CEO of Citizens.
Robertson asked the Bond Commission for an up or down vote on the idea.
But Treasurer John Kennedy, chairman of the panel, and Senate President John Alario asked Citizens officials to go back and look at other options – even though Cottrell said he couldn’t think of any other options.
The commission then abruptly adjourned without taking a vote on the $100 million borrowing plan.
Citizens’ shortfall stems from covering claims for Hurricane Isaac and a hail storm earlier this year and for settling class-action lawsuits for improper handling of past claims from hurricanes Katrina and Rita in 2005.
Besides a bond sale, another option available to Citizens includes charging an assessment on private insurance companies around the state for each property policy. The insurers would pass that cost on to customers through a surcharge, all of it charged in one year instead of over years like the bond repayment.
The direct assessment wouldn’t need approval from Bond Commission, but Citizens’ board of directors has said they don’t want to levy such a hefty charge on homeowners and businesses.