Its successes in reducing its insured population and securing low cost catastrophic coverage are driving the request by Florida’s state-backed property insurer for a statewide average 2.9 percent decrease on residential policies.
Citizens Property Insurance Corp. officials in a public hearing before the state’s Office of Insurance Regulation (OIR) painted a picture of an insurer that has downsized significantly while financially improving over the last several years.
Citizens President Barry Gilway said that the insurer in the past two years has gone from an entity “out of control” when it came to growth to one that is returning to being the insurer of last resort.
“I think we are at a better place than we have been in a decade,” said Gilway.
Regulators have 45 days in which to make a decision on the rate filing.
Gilway said that several factors are driving the proposed rate changes including the lack of any hurricane losses over the past eight years and five years of rate increases under the glide-path regulation that caps annual proposed rate increases at 10 percent.
According to Citizens documents, those factors have allowed the insurer to reach rate adequacy throughout the state with the exception of a few coastal counties where the insurer provides wind-only coverage.
As a result the insurer is requesting an average 5.8 percent decrease for homeowners multi-peril policies and a 3.8 percent average increase in homeowners wind-only policies.
Citizens Chief Risk Officer John Rollins said that barring a major storm, these trends should continue.
“Some areas still need the glide-path,but the end of the glide-path is in sight, we are just not there yet,” said Rollins.
The cost of sinkhole coverage is stabilizing, which Citizens officials said can be credited to reforms enacted in 2011 that restricted what constitutes sinkhole damage and set out requirements for repairs. Gilway called the reforms an “unmitigated success.”
Citizens has decided not to increase any sinkhole rates except for Hernando County, where the insurer proposes a 10 percent increase
Gilway said the insurer has been aggressive in settling lawsuits to end legal disputes and verifying that damaged properties are properly repaired. To date, about 755 sinkhole policyholders have agreed to settlements while only 37 lawsuits have been filed since the reforms.
Gilway, however, cautioned that trial lawyers are likely to keep testing the law and circumstances may change.
“There is so much uncertainty, so many unknowns,” said Gilway.
Gilway also said the insurer has achieved a level of stability due to the insurer’s ability to depopulate and secure reinsurance and catastrophic bonds at favorable rates.
Two years ago, Citizens had more than 1.5 million policies in force, which according to A.M. Best made it the ninth largest insurer in the country. At that point, the insurer’s personal lines and coastal accounts represented 24 percent of the Florida market; now that number has dropped to 16 percent.
Looking forward, Citizens expects that its policy count could equal less than 900,000 by year’s end depending on the success of planned take-outs by private insurers in November and December.
As a result of Citizens downsizing, its exposure had dropped more than 40 percent from a high of $500 billion to $300 billion, which means that the potential assessment risk on all Floridian citizens has declined from $11.6 billion in 2011 to $2.3 billion.
“I see nothing but coming but good news coming when it comes to taking the assessment burden off the back of Florida citizens,” said Gilway.
Gilway attributed that decrease to a number of factors including Citizens depopulation programs that have seen private insurers take out hundreds of thousands of policies out of the insurer.
Recently, the OIR approved 97,000 policies for take-outs including 91,500 multi-peril residential policies and 5,732 commercial properties. In total, private insurers have been approved to remove over 466,000 policies this year.
However, only 199,500 policyholders have accepted the private insurers offers of coverage.
Private Insurers’ Concerns
The proposed rate cut comes after eight years without any significant hurricane losses and after five years of rate increases under the 10 percent glide-path cap.
There is some concern among insurers that the rate cut will make Citizens, which was begun as a market of last resort, more competitive and this hinder private insurers’ efforts to take on more Florida market share.
“I have heard some concerns among companies that Citizens’ rate trajectory potentially could interfere with their depopulation efforts,” said Florida Property and Casualty Association Executive Director William Stander.
Florida Association of Insurance Agents President Jeff Grady said that as a matter of perception, any rate cut raises questions.
“It does seem to depart from the insurer of last resort having the highest rates,” Grady said.
Further Depopulation
Still, Gilway said he expects depopulation to continue once the clearinghouse is fully operational.
Currently, the clearinghouse allows private insurers to screen new applicants to Citizens and potentially offer them coverage. So far, that process has been limited to new applicants for coverage. But as of September 1, all Citizens’ renewal policies must also go through the clearinghouse before retaining their eligibility to buy coverage through Citizens.
Citizens is also considering other ways to depopulate.
Rollins told regulators that the insurer is focusing on depopulating other lines of business such as dwelling and fire policies, mobile homes and even older homes, which have largely been ignored by private companies.
“Frankly, I thing the private market has been missing the boat on this,” said Rollins.
Gilway also emphasized that the insurer’s rates have stabilized in large part to its ability to secure reinsurance and enter the insurance-linked securities market.
This year alone, Citizens completed a $3.1 billion risk transfer plan, which included a $1.5 billion catastrophic bond deal that was facilitated through the Bermuda-based Everglades Re. Ltd, which was created specifically to issue the bonds.
Gilway said that Citizens success over the last three years in the catastrophic bond market has helped pave the way for Florida insurers to do likewise, thus increasing their capacity to write business in the state.
Insurance Commissioner Kevin McCarty said that the growth in the insurance-link securities has been a game-changer when it comes to the market.
“One of the concerns we use to have before this alternative risk transfer is that you were competing for some of the same dollars as the private market,” said McCarty. “But what I’ve been hearing from professional people in Bermuda and elsewhere is that it has had zero impact on other companies’ ability to secure coverage at favorable rates.”
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Florida Frets That With Proposed Rate Cut, Citizens Could Be Too Competitive
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