Bonds vs. reinsurance considered
Pending any legislative action that would help depopulate its burgeoning 750,000 policy count, the Citizens Property Insurance Corporation’s Board of Governors on December 15 approved the maximum rate increase currently allowed by law: 11% for the 2022 rating cycle and 12% for 2023. The Board is also looking at cost-saving measures, including using pre-Cat bond purchasing instead of purchasing reinsurance.
Although its staff had recommended an average statewide increase of 8% in personal lines for 2022, the Board opted for the maximum legislatively-set glide path rate of 11%, expressing frustration that:
- Pricing is too low in many areas. Example: In Miami-Dade County, where Citizens has its most policies, it charges an average $4,083 compared to the $6,200 average by the private market.
- Citizens is the cheapest alternative 97% of the time statewide.
- The policy count continues to grow as a result, “in a company that is supposed to be shrinking,” said Citizens Chairman Carlos Beruff, noting again that Citizens was created by the legislature in 2002 as the insurer of last resort but instead has become the first choice of many, due to its below-market rates.
Policy count has grown by 300,000 policies in the past 24 months. Compare that to private property insurance companies who have been dropping polices and raising rates by upwards of 40%, due in part to costlier claims and increased litigation. Florida’s 52 domestic carriers tougher lost $847 million in the first three quarters of 2021, following losses of $1.8 billion in 2020. As Citizens President & CEO Barry Gilway noted in the meeting, “When private companies are unprofitable, they want to write less business.”
The Legislature last year under SB 76 allowed Citizens to increase the previous annual 10% rate hike cap by 1% each year until it reaches 15% in 2026. The Florida Office of Insurance Regulation (OIR) will have the final say on Citizens rate increase request with an expected public rate hearing in the coming months. Approved rates would take effect in August and the following January 2023.
The Citizens Board also discussed the option of purchasing pre-catastrophe bonds instead of traditional reinsurance for the 2022 hurricane season. This past year, Citizens spent $250 million for $2.7 billion in reinsurance that thankfully wasn’t needed. The Board discussed that using bonds instead could save substantially on net costs, while still providing required financial backing to pay claims if a big storm hit, impacting surplus. The Citizens staff is expected to create cost scenarios for presentation at the next quarterly meeting.
LMA Newsletter of 1-3-22