Citizens lifts hurricane Ian loss estimate to $3.8bn. Cat bonds not expected to trigger

Florida’s property insurer of last resort Citizens Property Insurance Corporation has significantly increased its loss estimate for hurricane Ian, raising it to $3.8 billion, a level at which some private market reinsurance capacity will likely come into play, but leading it to believe its catastrophe bonds won’t be triggered.

Previously, Florida Citizens had given a loss estimate range of between $2.3 billion and $2.6 billion for hurricane Ian.

Now, it says it has updated its hurricane Ian loss estimates to reflect additional costs that might be expected from litigation and other claims-related expenses.

The insurer said that the revised projection of $3.8 billion of claims now incorporates the results of a second hurricane model, having previously only looked at one.

It also considers the actual hurricane Ian claims activity to date, and includes additional provisions for litigation costs and inflation.

Out of the $3.8 billion of direct losses and loss adjustment expenses, Citizens says that the revised projection anticipates a $1.4 billion portion of the loss will be ceded to the Florida Hurricane Catastrophe Fund (FHCF) and private reinsurance markets.

Private reinsurance cover kicks in alongside the FHCF, in sliver layers placed with reinsurers at Citizens last renewals.

Within the Citizens Coast Account reinsurance tower, there is also additional private occurrence based reinsurance above the FHCF, that would attach around $2.498 billion of losses to that part of Citizens business.

Citizens said that the catastrophe bonds it has in place are not expected to be triggered and we can report that these attach only once losses reach above $2.598 billion to the Coastal Account, or above $4.115 billion for the Personal Lines Account.

Citizens losses will be split across the two, so at the moment it seems the insurer is anticipating its losses being quite split between the two Accounts.

After the reinsurance is considered, Citizens said that the net impact to its surplus is expected to be $2.4 billion.

“We will continue to update the market and other stakeholders as we gather additional information from actual losses,” explained Jennifer Montero, Citizens’ Chief Financial Officer.

Citizens has not revealed an updated claims count figure, but notes that this remains an early projection of ultimate costs that will take several years to fully mature and said they will be reevaluated at year-end.

This is additional positive news for the catastrophe bond market, as some of the Everglades Re catastrophe bonds sponsored by Florida Citizens had been marked down.

As a result, there may be some recovery of value associated with these Citizens cat bonds when prices are marked again by cat bond fund managers.

There is participation by ILS fund managers in the Citizens reinsurance program sliver layers that sit alongside its FHCF coverage.

On the Coastal Account side, the 2022 renewals saw Nephila Capital via Markel, LGT’s reinsurer Lumen Re, and Pillar Capital management writing a share of the tranche of the program, with Nephila taking the biggest chunk at almost 29.6%.

On the Personal Lines Account side, D.E. Shaw took the biggest collateralized slice of the sliver layer of reinsurance (at over 17.85%), while Pillar Capital also participated with a smaller 2.14% line.