Reinsurance softens Louisiana Citizens hit from hurricanes

Louisiana Citizens Property Insurance Corporation, the non-profit state mandated insurer of last resort in storm hit Louisiana, has seen the hit to its portfolio from recent hurricanes significantly softened by its reinsurance program.

In fact, Louisiana Citizens has revealed that its ultimate loss from recent hurricanes has been reduced by more than 72% to just a $35 million loss that the carrier will retain, after its reinsurance partners assumed the majority of the impacts.

Louisiana state has been impacted by numerous hurricanes and tropical storm activity in this record breaking 2020 season, with Louisiana Citizens reporting claims from Cristobal, Laura, Sally, Delta and most recently Zeta.

In total the insurer has so far received some 6,341 claims from Cristobal, Laura, Sally, Delta and Zeta, amounting to ultimate losses of $75.7 million through November 5th 2020.

But in total, Louisiana Citizens estimates that the 2020 storm season will actually drive around 10,278 claims with losses totaling $128.6 million, with hurricane Laura alone estimated as a $65 million loss.

But thanks to its reinsurance, LA Citizens expects to only retain $35 million of those claims and it expects that zero costs of any claims from Delta and Zeta will be retained, even as it compensates policyholders for their damage.

“I commend Citizens for its smart financial management,” explained Insurance Commissioner Jim Donelon. “Citizens’ efforts are paying off for the people of Louisiana, who won’t face any special assessments from this record hurricane season.”

Citizens robust reinsurance program is to thank for this financial buffering, that will see the state mandated insurer come out of the hurricane season still in good shape, despite the particularly active tropical storm season in 2020.

After hurricanes Katrina and Rita in 2005, a $150 million assessment had to be placed on all Louisiana insurance policies followed by a $900 million bond issue made by Citizens to recapitalise. These will continue to cause assessments on all property insurance policies through 2026.

Conversely, the robust reinsurance program means there won’t be any hangover for Citizens from the 2020 storm season, thanks to its six layered tower as well as its catastrophe bonds, which together enable it to afford a 1 in 300-year event.

Just five years ago, Louisiana Citizens only had sufficient reinsurance coverage for a 1 in 100-year event, and that came with a $50 million deductible.

Hurricane Laura exhausted Citizens $35 million deductible this year, meaning its reinsurance program picked up the rest of the seasons losses for the insurer.