Private Companies Offer Plans to Depopulate Florida’s Citizens

Private companies and investors say they are willing to remove thousands of policyholders from Florida’s state- backed homeowners market if they can get officials to give them millions of dollars in loans.

At a Citizens Property Insurance Corp. Depopulation Committee meeting yesterday, six companies and investors offered their plans to remove policies, The plans involve shifting monies from Citizens to the their own coffers through quota-share reinsurance agreements, providing surplus notes, and making up the difference between Citizens rates and actuarial rates.

Committee members, who have been under pressure by Gov. Rick Scott to find ways to depopulate, showed little desire to rush into an agreement with any groups that offered few details beyond a sketch of how the take-out plans may work.

“I don’t think we are just going to hand over money,” said committee member Chris Gardner.

Several groups offered ideas to form new companies so they could assume Citizens’ policies.

Sawgrass Mutual Insurance Co. Executive James Esse offered to start up Trade Winds Mutual Insurance Co., and remove some 50,000 policies if Citizens would provide a $25 million surplus note.

Committee member Nancy Bailey, however, expressed concern that the company could not pay all the expenses needed to adjust claims and compensate agents without exhausting much of the $25 million, leaving it potentially short of funds in the event of a major hurricane.

Tower Hill Insurance Co. spelled-out a similar plan arguing that with a surplus note it could reduce Citizens probable maximum loss for a 1-in-100 million storm by $840 million if it assumed $300 million in exposure. At the same time, it estimated it could reduce Citizens assessments on policyholders by seven percent.

However, Tower Hill’s plan called for some of the surplus it owed Citizens to be reduced in the event of any hurricane losses.

One approach suggested by United Insurance and Property Corp. called for policies to be removed at Citizens rates and be limited to the current 10 percent annual cap until United’s rates reached actuarial levels. Citizens then would pay the rate differential between its rates and the actuarial indications.

The rate differential could be as high as 33 percent in some areas of the state and could cost Citizens as much as $116 million over the course of three years. That money could come in the form of an annual cash payment or reinsurance.

United CEO John Forney said that in order to qualify for the program it would also have to demonstrate it can bring some new capital of its own.

Committee member John Rollins supported the idea, saying, “we don’t want to start with bad companies.”

He said that the rate differential could be much higher depending on the company’s performance and that fact there is no guarantee on how high the actuarial rate needs might be.

Guy Carpenter offered to assist Citizens in creating pre-packaged assumption plans that would then be auctioned off to investors, which would be supported by Citizens providing quota-share reinsurance.

While Citizens contemplates the offers from private sources, officials noted that it is doing better than expected when it comes to its own current depopulation efforts. To date, three insurers have removed more than 84,000 policies, with more than 53,000 going to Tampa-based Southern Fidelity Property & Casualty Insurance Co.

“This is twice the number of policies as we expected all year,” said Murphy.

Committee members, however, took aim at the number of Citizens policyholders and agents who choose to stay with the insurer rather than going to a private company.

Southern Fidelity Insurance Co. initially looked to remove 78,000 policyholders from Citizens, but saw the number decline significantly after more than 26,000 policyholders and 2,600 agents failed to agree to Southern Fidelity’s offer.

Committee Chair Chris Gardner questioned whether Citizens could somehow pre-market the take-outs since usually the first time policyholders hear about it is from the private insurer. He questioned whether Citizens could let policyholders know in advance about the details of plan, including information on the private insurer’s rates and capitalization.

Murphy said that Citizens, state regulators and private companies are working to improve the information provided to policyholders. However, she said such a move would change the take-out process and pose a variety of legal questions since Citizens would in effect be endorsing the company.

“This has never been our obligation or responsibility,” said Murphy, pointing out that right now is up to state regulators to sign-off on a company’s financial resources.

Citizens President Barry Gilway has said he hopes the insurer will reduce its policyholder rolls by 500,000 over the next three years while moving closer to rate adequacy..

Citins has set a target fo 500,000 policies

Topics Florida