Florida’s Citizens Property Insurance, the property insurer of last resort in the hurricane prone sunshine state, is to increase its spending on private market reinsurance and risk transfer in 2013, upping the amount of cover it will look to acquire by almost 17%. 2012 was a landmark year for Citizens and the Florida insurance market as the insurer took out $1.5 billion of cover, including the $750m Everglades Re catastrophe bond, greatly increasing the target of $1 billion it set for reinsurance cover.
For 2013, Florida Citizens will look to increase the reinsurance cover it purchases by another $250m to $1.75 billion. This is quite extraordinary when you think that only three or four years ago Citizens spent nothing on private reinsurance and risk transfer, relying solely on the Florida Hurricane Catastrophe Fund and assessments on policyholders and state residents. In 2011 the insurer bought $575m of reinsurance protection, upping that by almost three times to the $1.5 billion bought in 2012.
The push to offload Citizens risk to the private reinsurance and risk transfer markets has been underway for many years, but only in 2012 did it really take off. Now, as we reported earlier this week, it has also begun to de-populate some of its riskier policies, handing them over to a private re/insurer.
In 2012 Florida Citizens hailed its reinsurance buying as a success, citing savings made of as much as $50m on its risk transfer program as a whole. It said it saved $18m by opting to place the massive Everglades Re cat bond, compared to using the traditional reinsurance market for that layer of risk. It also said it saved $28m on the purchase of a $750m traditional reinsurance layer of coverage as well.
For 2013, Citizens has upped its budget for reinsurance and risk transfer premiums and charges to $327m for the year, as decided at a board meeting yesterday. It hopes that this spend will help it to achieve the $1.75 billion worth of cover for the year, the 17% increase from 2012’s program.
Citizens is due to review details of its reinsurance and risk transfer program for the year in March, when plans will go before the board for approval. Among those plans is expected to be another catastrophe bond issuance, after Citizens CFO Sharon Binnun hinted at an event that the insurer could seek another $250m of capital markets cover by issuing another cat bond in 2013.
If that is indeed the strategy, Florida Citizens 2013 risk transfer program could include $1 billion of capital markets cover in catastrophe bond form and $750m of cover in reinsurance form, some of which is believed to be from collateralized reinsurers and hence capital market investor backed as well. So in total the convergence reinsurance market might be providing the lions share of Florida Citizens reinsurance cover in 2013, which perhaps gives us a glimpse at a trend which may become more prevalent within the risk transfer programs of large buyers of reinsurance protection.
Update: After we’d published this article Citizens confirmed to us that work to plan its next cat bond transaction had been approved at the recent Board meeting. Read an update here.