Florida’s Citizens Property Insurance Corporation has continued to downsize, by shifting policies back to the private insurance market, while further reducing its exposure with its greatly enhance reinsurance and catastrophe bond program.
In an announcement Florida Citizens said that it emerges out of another benign hurricane season with a much lower exposure to storms, further reducing the potential for assessments on Florida residents. A nine-year respite without any damaging hurricanes striking Florida has helped to stabilise the Florida property insurance market, increasing private market choices for homeowners, while also lowering the cost of reinsurance and capital markets risk transfer for Citizens.
Since June 1st 2014 Citizens has further reduced its policy count, through the depopulation program and the clearinghouse arrangement, helping it to further reduce its exposures. At June 1 Citizens had 929,517 policies in force with a total exposure of $293.8 billion. By November 28th the policy count had decreased by 21.8% to 727,125, which has the effect of reducing Citizens exposure by 22% to $229.2 billion.
Another hurricane-free year has helped Citizens to improve its surplus again, while the cheaper cost of reinsurance and catastrophe bond risk capital has helped the state-backed insurer of last resort to dramatically improve its risk transfer.
The result is lower assessment risk for Floridians, a better financial state as Citizens moves into 2015 with a likelihood of more depopulation and continued attractive reinsurance conditions likely to ensure that Citizens can enter the 2015 hurricane season with even better protection.
“Citizens already is looking ahead to 2015, capitalizing on the growing strength and vibrancy of Florida’s private insurance market to increase consumer access to private-market insurance options through its Property Insurance Clearinghouse and Depopulation Program,” commented Barry Gilway, Citizens President and CEO. “The success of these programs, along with favorable pricing in the international reinsurance markets, put Citizens on an even stronger financial footing heading into 2015.”
In 2014 reinsurance and capital market conditions helped Florida Citizens to purchase 68% more reinsurance protection, through a combination of traditional reinsurance, collateralized cover and catastrophe bonds, for 2014 at a lower cost than it had paid in previous years. More cover for a cheaper price has increasingly been the story for Citizens over the last few years as it sought to benefit from the lack of catastrophes and the highly capitalised and competitive reinsurance market.
Citizens has also been able to pass on some of those savings to customers, with as many as seven out of every ten Citizens customers told to expect possible rate reductions for 2015. This is evidence of the strategy really working, better protected, lower risk of assessment (or at least less assessment) and passing savings on to customers.
In 2014 to the end of November alone Citizens will have seen 335,692 policies removed through take-outs, 6.5% more than were taken out in 2013. Another 180,040 residential policies and 2,527 commercial policies are set for depopulation in January 2015 as well.
However, no matter how protected Citizens becomes there will always be the risk that a major hurricane wipes out its protection and assessments still have to be made. The risk of assessments is considerably lower but certainly has not gone away should a major storm strike the state.
“We have been fortunate to have avoided a major hurricane for nine years, but Florida must continue its preparation for the next major windstorm,” said Citizens Board of Governors Chairman Chris Gardner. “Citizens remains steadfast in its efforts to shore up its foundation and reduce assessment risk for Floridians by helping property owners find coverage outside Citizens and ensuring that we provide quality service to those who still count on Citizens to protect their homes and businesses.”
In 2014 Florida Citizens sponsored the largest single catastrophe bond in the history of the market, the $1.5 billion Everglades Re Ltd. (Series 2014-1), it will be interesting to see whether it chooses to add to that with another cat bond issuance in advance of the 2015 hurricane season. As things stand, cat bond market conditions are likely to remain conducive and we could see Citizens return with another large issuance next year.