The opportunity to takeout insurance policies from Florida’s Citizens Property Insurance Corporation may return once again, as the insurers portfolio is expanding faster than it expected and it feels some of the book may be attractive.
Florida Citizens had previously said that the state of the Florida insurance market would drive its portfolio up by roughly 17% over the course of 2020.
Originally, a 2020 budget forecast that Florida Citizens would find itself insuring some 431,000 policies by the end of 2020, but that forecast was increased by 17% to 517,000.
In a board meeting last week, President of Florida Citizens Barry Gilway revealed that the growth estimate has increased significantly again, with Citizens now anticipating an estimated policy count of 540,000 for year-end 2020 and well over 625,000 for the end of 2021.
What does this mean?
It means Florida Citizens is likely to need to buy an increasing amount of reinsurance protection, also raising the prospects of further catastrophe bonds over the next year.
But it also suggests potential opportunities, for those providers of insurance capacity or reinsurance capital that are able to raise the money and have an appetite for portfolios of Florida focused property catastrophe exposed risks.
A few years ago Florida Citizens began to downsize its portfolio, helped significantly by the takeout or depopulation of policies to other insurance and reinsurance entities.
As the private insurance market took the higher quality policies in the Citizens portfolio, as the quality declined over time the takeouts slowed significantly.
But now, with Florida Citizens growing rapidly again, thanks to the challenges faced in Florida’s property insurance market that are driving policyholders back to the residual market player, there is a growing chance that some capital may find taking out chunks of the Citizens portfolio attractive once again.
The Florida insurance market’s poor financial results have been one factor helping to drive the resumption of policy growth for Citizens. While at the same time the increasing costs of reinsurance capital have also meant that some private insurers are either unable to assume as much risk, or are hiking rates so much that Citizens becomes the only affordable option for certain policyholders again.
Gilway noted in the recent board meeting that rate increases continue apace, driven by social inflation and loss adjustment expense costs from recent catastrophe years and also the following rise in reinsurance pricing.
“We do not anticipate market conditions to improve significantly until at least the middle of 2021 when reinsurance capacity will be reevaluated, and the current rate increases will have had an opportunity to show up in industry financials,” he explained.
But he went on to add that the trends seen do create a marketing opportunity for Citizens as, “I do believe that there is potentially profitable business on the Citizens’ books today for those companies that have the capacity or can raise the capital.”
That suggests the focus on takeouts and depopulation may resume at Florida Citizens, or alternatively on securing longer-term reinsurance risk transfer through instruments such as catastrophe bonds, as another way to reduce the overall risk on Citizens balance-sheet.
Takeouts have in the past proved attractive to insurance-linked securities (ILS) fund managers, such as Nephila Capital. It’s possible they might prove so again.