The approval of two carriers to takeout policies from Florida’s property insurer of last resort, Citizens Property Insurance Corporation, right in the middle of the hurricane season, shows there are risks that are viewed as attractive within the Citizens portfolio, while these semi-seasoned risks can even be an easier win than finding and writing new business.
As Florida Citizens has been expanding its policy count and exposure rapidly due to the challenges faced by carriers in the Florida property insurance market, there has been an understanding that depopulation, or takeouts, would become a focus again for the first time in a few years.
The Citizens depopulation program allows the residual market insurer to shed policies to private market entities willing to assume them.
As a result, it can help Citizens downsize its risk portfolio, while those taking-out Citizens property insurance policies get access to a source of new business in bulk, which can be considered seasoned to a degree (hence we called it semi-seasoned for brevity), as these policies have at least had oversight from Citizens over the period they entered and were held in its book.
Takeouts from Citizens were very popular back from 2013 through 2017 and these helped the insurer shrink its portfolio dramatically.
Of course, timing is everything with takeouts and the beneficiaries of these were often hard hit by the 2017 hurricane season impacts in Florida, with this including some ILS players and also Florida focused insurance carrier start-ups.
The recent growth of Florida Citizens has been exacerbated by the litigation and fraud issues in Florida, which contributed to the failure of a number of carriers.
In fact, Citizens surpassed 1.3 million policies just at the start of June 2023, having begun this year at around 1.15 million, but grown dramatically from approximately 760,000 policies at the start of 2022.
In fact, with the help of the depopulation program and insurers taking-out policies, Citizens policy-count had dropped to as low as 419,000 in October 2019.
It’s been on a steady climb ever since, driving the need for depopulation to restart and earlier this year the former Florida Citizens CEO Barry Gilway said he expected a potentially “significant depopulation” of Citizens could happen as soon as after the next hurricane season.
But some carriers are so attracted to risk from Florida Citizens portfolio they cannot wait, among them the insurtech underwriter Slide, which recently sponsored its first catastrophe bond, and another recent Florida-focused startup named Loggerhead Insurance.
Slide, the insurance firm launched by former Heritage CEO Bruce Lucas, is set to takeout 25,000 policies from Citizens.
A filing notes that these are “selected” policies, implying some ability to choose which suit Slide’s risk appetite, while 24,000 of them will be personal residential policies from the Personal Lines Account, and the remaining 1,000 multi-peril policies from the Citizens Coastal account.
Loggerhead meanwhile, using its Loggerhead Reciprocal Interinsurance Exchange entity, will takeout up to 1,000 policies from the Citizens Personal Lines Account.
Now, these are not big numbers in the grand scheme of Florida Citizens portfolio, but they are an important signal that policies at Citizens are likely to be viewed as attractive opportunities, for those looking to grow in Florida.
Interestingly though, these takeouts are set to be effective on August 22nd, so right in the middle of the Atlantic hurricane season.
That’s quite unusual, as takeouts and depopulation efforts are typically anticipated for outside of wind season, but again, perhaps this shows the attraction business at Citizens might hold right now.
Both companies will have to demonstrate they have the reinsurance to support these new policy assumptions, so there’s a chance some additional buying could be required, although it’s perhaps more likely this was already under consideration prior to the mid-year renewals for these companies being completed, given the filings are dated May 31st.
Another interesting aside is the fact that Slide has recently put in place endorsements related to roof damage claims, that are designed to better control its exposure to fraud and litigation in its claims experience.
Almost all carriers’ are taking steps like this, to mitigate frequency and inflation of claims by tightening up forms and wordings.
As policies in Citizens have already received some level of scrutiny, again perhaps they can be considered semi-seasoned to a degree, carriers in Florida are perhaps now better placed to control loss potential of their growing portfolios while benefiting from the takeout opportunity.
Of course, getting in early and taking out these policies during wind season could also have given Slide and Loggerhead a chance to be more selective. Especially as not all of Citizens book will be made up of policies deemed as attractive to assume, hence early picking from the portfolio may strategically be the right way to go.
It’s going to be interesting to see how active Citizens depopulation program is later this year and also whether we see any ILS capital participation again, the program can be a good way to put alternative reinsurance capital behind a portfolio of Florida risk, like we did when takeouts from Citizens last took-off.