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Original Risk: A Society for Change Agents

Florida Citizens aims to continue its depopulation


Florida’s Citizens Property Insurance Corporation has shrunk its exposure significantly in recent years, thanks to a gradual privatisation of its risk through its policy depopulation program.

Florida Citizens logoNow, Florida Citizens wants to decrease its exposure even further, with a resumption of depopulation a possible route to gaining further private market participation in its risks.

It’s not just about transferring risks to the private market, which could be achieved through the use of more reinsurance or catastrophe bonds. Rather this is about shifting the policyholder away from Citizens and into the private market, where insurers can manage the administration, claims and renewals from then on.

Florida Citizens depopulation program has been particularly successful, helping the insurer to shrink from a peak in 2011 when it covered 1.5 million policies, equivalent to 23% of the Florida market, resulting in exposure that topped $512 billion.

At this time Citizens has shrunk its portfolio of risk down to roughly 444,000 and only $107 billion of exposure, a significant shift of risk away from taxpayers and back to the private markets.

Efficient reinsurance pricing has been a significant additional driver of this change, as it has helped both Florida Citizens itself in controlling its exposures as the portfolio changed, but more importantly it has helped those insurers assuming policies from Citizens to manage the exposure they bring with them.

The insurance-linked securities (ILS) market and how its influence adjusted the reinsurance landscape in Florida over the last two decades has had a significant hand in helping Citizens to achieve this.

Not just through the provision of efficient reinsurance capital, but also more directly through the appetite of investors to assume coastal hurricane exposed property risks, as was seen in Nephila Capital’s depopulation backing efforts through its MGA Velocity.

Florida Citizens is to task an outside evaluator with identifying what is the best way for it to further reduce its policy count and exposure at this time.

Citizens Board of Governors agreed last Wednesday that an outside review to identify any ways it can further reduce its footprint would be appropriate. The last outside study on this was published five years ago.

“We should continue to look at ways to improve for our policyholders and stakeholders,” explained Citizens Chairman Bo Rivard. “We agree the timing is right and look forward to seeing where it leads us.”

“Today we look more like a real Residual Market with only 4% market share and less than $107 Billion in exposure. We still believe it is appropriate to examine what might be necessary to get Citizens exposure to an even lower level,” added Barry Gilway, Citizens President/CEO and Executive Director.

Depopulation efforts to date have significantly reduced the potential for taxpayer assessment in the event of major hurricanes striking Florida, but the goal is to take this responsibility even further away, by shifting more risk into the private marketplace.

The depopulation of Citizens policies has slowed dramatically as it has shrunk, as the quality of remaining property stock is seen as lower and more exposed to hurricane winds and storm surge.

As recently as calendar year 2015 almost 273,000 policies were taken out of Florida Citizens, but in 2019 that figure fell much lower, with we understand a relatively small number taken out.

Given the increased sophistication of the way insurance and reinsurance companies can use the capital markets now, compared to 2015 when the last report was written, there is the potential for innovative approaches to allow for more depopulation.

But in order for the capital markets to help, the key factor will be risk commensurate returns from the policies depopulated.

It will be interesting to see if Florida Citizens can find ways to encourage private actors to take on more of its remaining policies and what role reinsurance and ILS might play in further reducing its risk profile.

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