Louisiana’s property insurer of last resort received approval from state officials to bump up its bank line of credit, giving the company more resources to cover claim costs if the state is hit with a significant storm.
The State Bond Commission backed the request without objection to let the Louisiana Citizens Property Insurance Corp. increase its line of credit with Regions Bank from $75 million to $125 million.
That was the final step for Citizens to complete the deal.
Steve Cottrell, chief financial officer for Citizens, has said the increase – combined with the company’s own insurance coverage – will ensure Citizens doesn’t have cash flow problems even if Louisiana is hit with two significant storms.
A Bond Commission analysis of the proposal said Citizens is “well-capitalized,” with available revenue and insurance coverage.
“However, as a result of covering claims for Hurricanes Isaac, Gustav 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, there is a potential for a cash shortfall should a catastrophe occur,” the financial analysis said.
The bank line of credit works as short-term borrowing for the company, available to give Citizens upfront cash to pay claims and other expenses if the insurer doesn’t have enough money on hand for the costs.
The money would have to be paid back with interest of up to 6 percent if the line of credit is used.
Citizens provides property insurance mostly to coastal Louisiana homeowners and businesses that can’t get insurance through the private market.
The move to boost the line of credit came after a $100 million borrowing plan stalled, despite concerns about a looming shortfall because company expenses are projected to be larger than revenue in the next year.
Gov. Bobby Jindal and Insurance Commissioner Jim Donelon opposed the borrowing plan, and the Bond Commission refused to vote on the idea because it would have been paid off through assessments on anyone with property insurance on the private market. It also could have cost the state, because the assessment can be claimed as a state tax rebate.
But if Citizens has to tap into its bank line of credit, the company will have to decide how it would repay that short-term loan, which could force officials to revisit the idea of assessments.