No. of State-Owned Citizens Policies Increased 26.4% in a Year

By Kerry Smith

More Fla. homeowners are relying on the state’s “insurer of last resort.” Citizens says it’s financially sound for now thanks to investment income that has outpaced operating losses, but at the current rate, a future disaster will again force taxpayers to make up some of its expenses.

JACKSONVILLE, Fla. – Citizens Property Insurance Corporation is experiencing the effects of the financially troubled private insurance market and continues to rely on investment income to offset operating losses as it prepares to accept nearly 150,000 added policyholders by the end of 2021.

Citizens has had operating losses since 2015 that it offset with investment income earned from its $6.4 billion reserves. Since 2013, Citizens’ combined operating losses have approached $690 million. That figure was offset by $726 million in investment income during the same period.

Citizens Board Chairman Carlos Beruff says the insurer remains financially sound, but that scenario is unsustainable over the long term and increases the risk of assessments added onto all Florida property, auto and other insurance policyholders in Florida if the company doesn’t have enough money to cover a future loss.

“We are in a place that we have to make some hard decisions or think about ways we can solve this problem,” Beruff says. “We must not become a burden on the people of Florida.”

For years, Citizens worked to lower its number of homeowners policies. However, a recent rapid increase in policy count is driven by private companies that are taking steps to reduce risk in response to continued market pressures. Citizens and private companies are, according to Citizens, “reeling from continued high litigation rates, reinsurance premium hikes and higher than expected losses from Hurricane Irma.”

Since March 2020, Citizens policy count grew from 443,444 to 551,613 – an increase of 26.4% in just the past year. Citizens now takes on more than 3,000 new customers per week.

Citizens board members held a wide-ranging discussion of possible solutions but took no action. Members, however, said Citizens’ growth poses an increasing risk of assessments, which are levied if Citizens exhausts its reserves and cannot pay claims.

As part of its efforts to prevent assessments, Citizens  says it will seek approximately $2.6 billion in reinsurance coverage for the 2021 hurricane season to protect surplus while its policy count continues to grow.

Chief Financial Officer Jennifer Montero provided a preliminary update on Citizens proposed 2021 risk transfer program to its Board of Governors on Wednesday. Montero and others are now negotiating with reinsurers and capital market representatives. The hope to have a proposal ready for board action in early May, prior to the start of the 2021 hurricane season.

The plan includes the risk transfer of up to $1.72 billion in coverage for the Coastal Account and $926 million for the Personal Lines Account (PLA), which generally covers properties farther from the coast.

Combined, Citizens says that level of coverage will allow it to weather a 1-in-100 year storm with no risk of levying assessments while still protecting 60% of coastal account reserves, and 32% of PLA reserves.

© 2021 Florida Realtors® Reprinted with permission.

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