Citizens increased reinsurance costs reflect firmer Florida market

The risk transfer planning at Florida’s Citizens Property Insurance Corporation is underway after a board meeting that approved a $110 million budget to secure $703 million of fresh reinsurance coverage for 2019.

That’s quite an increase from the $92 million budget to secure $940 million of fresh reinsurance protection that Florida Citizens had allocated a year ago, reflecting the firming of the Florida market and expectations that reinsurance capital providers will expect more returns in 2019.

For 2019, Florida Citizens will be in the market to purchase $503 million of reinsurance for its coastal account, across both personal and commercial residential as well as commercial non-residential portfolios.

This will feature a to be purchased $100 million sliver of per-occurrence coverage to sit alongside the Florida Hurricane Catastrophe Fund (FHCF) protection in the lower layer of Citizens tower, sitting above retention covered by surplus.

That sliver has shrunk from a proposed $148 million as Citizens surplus is slightly better than had been forecast back in March, it seems.

Sitting above that layer is the multi-year aggregate reinsurance protection provided by Florida Citizens in-force catastrophe bonds, the $550 million of cat bond coverage sits alongside another $330 million of traditional aggregate reinsurance, which was all multi-year in nature.

The layer above that will feature a fresh to be purchased $350 million aggregate reinsurance layer, as you see in the proposed residential coastal account tower below.

Also to be purchased is a $53 million layer in the commercial non-residential tower, which sits surrounded by surplus on all sides.

Following a decrease in surplus to the Personal Lines Account (PLA) of Citizens, due to the impacts of hurricanes, assignment of benefits (AOB) and other loss creep factors, Florida Citizens is buying reinsurance for this tower in 2019, as we explained in more detail back in March.

The details haven’t changed much, a $200 million aggregate wrap around the FHCF protection for the PLA, the attachment of which has risen by a tiny amount to $415 million thanks to slightly better than forecast surplus.

So in total that is $703 million of reinsurance required to be purchased in 2019, at a budget maximum of $110 million of spend.

The increased budget reflects the expectations of paying firmer pricing for much of its coverage in 2019.

Adding the $703 million to be purchased to the $880 million already in-force of cat bond and multi-year protection, will give Citizens a third-party reinsurance program of $1.583 billion in size, across coastal and personal accounts.

Florida Citizens will be going out to reinsurers and any participating ILS funds with firm order terms to secure this program as rapidly as it can, having already secured price indications that have driven the increased budget for 2019.

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