Florida’s Citizens’ Plan for Loans to Private Insurers Criticized

By | September 10, 2012

Hurricane-prone Florida’s insurer of last resort, state-run Citizens Property Insurance Corp. on Friday approved a plan to provide up of $350 million in sweetened loans to private companies willing to take over policies.

A state legislator denounced the plan by the board of governors for what is Florida’s largest insurer as a bailout for corporations, while Citizens’ chief executive said the program would save money and shelter Florida home owners from outsized financial risk.

With more than 1.4 million policies, Citizens could see its ranks cut by as many as 350,000 policies if companies take up the offer, which promises low-interest loans in exchange for keeping Citizens’ policies for at least 10 years.

The plan would allow individual companies to secure 20-year loans of up to $50 million. Interest rates would be based on policies’ relative risk, with riskier policies being reimbursed at a higher rate in an effort to keep companies from “cherry picking” lower-risk properties.

Of the total loan program, $300 million will be targeted to non-coastal residential properties, which as a group represent the fastest-growing book of business for the state-backed insurer. The remaining $50 million would be set aside for companies willing to assume coastal residential policies that are especially prone to storm damages.

Backers say the loan program would reduce Florida’s total insured exposure by more than $2 billion and reduce by $1.2 billion emergency assessments to be paid by policy holders in the event of one-in-100 years storm. The loan program also eliminates $240 million in annual reinsurance costs.

“This represents an incredible opportunity for Citizens,” said Citizens’ President and CEO Barry Gilway.

Created as an insurer of last resort, Citizens has become the largest property insurer in a state historically vulnerable to hurricanes, with more than $500 billion in total exposure. State officials are trying to reduce its policy count by requiring it to charge more actuarially sound rates, which are capped at annual hikes of 10 percent.

Insurance officials estimate that only about 250,000 of Citizens’ rates are actuarially sound.

Critics on Friday said Citizens is making a mistake by assuming the role of financier. In addition, the idea of loaning taxpayer-backed money to an industry that has dramatically reduced its Florida exposure is hard to swallow.

“This is the biggest bailout in Florida history,” said State Senator Mike Fasano, Republican of New Port Richey.

The program would limit participants to companies already doing business Florida. Initial estimates say that at least 20 firms would qualify, though not all have expressed interest, according to Gilway.

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