April 13th, 2009

Florida Insurance Roundup: Apr 6 - 12, 2009

Posted at 1:00 PM ET

Guy Carpenter Florida Operating Committee

This weeks’s topics include:

Possible FHCF Coverage Reduction

The Florida Hurricane Catastrophe Fund (FHCF) may reduce Temporary Increase in Coverage Limit (TICL) by USD2 billion in coverage at the June 1, 2009 renewal. One of the proposals may also increase the TICL co-participation. If this occurs, some carriers will have to seek additional coverage in the private reinsurance market. Your Guy Carpenter account team can quantify any additional limit based on current information available.

Citizens Property Insurance Rate Increases

Both the Florida State Senate and House of Representatives are proposing rate increases for Citizens - with the Senate capping the annual rate increase at 10 percent and the House at up to a 20 percent rate increase, subject to Governor Crist’s signing a final version into law.

Florida Governor Crist commented on Tuesday, April 7, 2009 in a media interview that a proposal to raise rates 10 percent “doesn’t sound inappropriate to me.”

Citizens Board Meeting Recap

The Citizens Board of Governors met on April 3, 2009.

Citizens currently meets all its established performance benchmarks, though it may not meet certain other benchmarks in the next quarter, because it is rewriting its High Risk Account (HRA) policies.

Citizens finished 2008 with more than USD7 billion in operating capital and approximately USD1.75 billion in invested bond proceeds. But, loss ratios increased last year.

Line of Business Loss Ratio
Personal Lines Account (PLA) 55%
Commercial Lines Account (CLA) 21%
High Risk Account (HRA) 19%

Reasons cited by Citizens for the increase in loss ratios include policy depopulation, sinkhole claims, and newly created multi-peril policies and Tropical Storm Fay.

Citizens Working Group on Water Losses

A working group has been formed to investigate an increase in non-catastrophe losses. The specific problem targeted is water damage. This accounts for approximately 55 percent of reported non-catastrophe personal multi-peril claims annually. From 2006 to 2008, plumbing leaks or breaks accounted for 63 percent of all water-related losses.

The Florida counties with the most frequent and severe water-related loss claims are:
Miami-Dade: 18 percent
Broward: 13 percent
Palm Beach: 7 percent

To remedy this situation, the working group is considering:

  • Mitigating damage to insured property (loss control)
  • Identifying fraud and reducing disputed (and litigated) claims
  • Providing clearer underwriting guidelines and policy language
  • Using new data sources and enhanced analytical capabilities to monitor loss trends
  • Engaging consumers in loss prevention via education and outreach

Citizens Financing Developments

The Florida Office of Insurance Regulation (OIR) has approved the issuance of up to USD2.5 billion in Series 2009 HRA Senior Secured Bonds. Currently, the mandatory 30-day waiting period before which bonds may be purchased is in effect.

A USD400 million 364-day revolving bank line of credit has been approved for the PLA and CLA and is about to be executed. This adds to USD2.66 billion in PLA/CLA surplus. If Citizens draws on this line of credit, the funds for repayment are expected to come from FHCF reimbursements or Citizens assessments if FHCF reimbursement is unavailable.

Composition of the Citizens Investment Portfolio

Asset Class Allocation
U.S. Government Treasury and Agency Bonds 34%
Tax-Exempt Money Market Funds 24%
Corporate Investments 20%
Prime Money Market Funds 18%
Asset-Backed Commercial Paper and Default Bonds 3%
Illiquid Local Government Investment Pool Fund B Investments 1%


Florida’s Admitted Residential Property Insurance Market and State Farm Florida

State Farm Florida currently has 16 percent of the personal residential market and 17 percent of the commercial residential market. The OIR is confident that the private market can absorb these policies if the State Farm withdrawal from Florida is approved. So far, 30 companies have shown intent to absorb the State Farm Florida policies.

Citizens currently writes 30 percent of Florida’s residential property insurance policies. Major national companies’ “pups” (i.e., the Florida-only units of these carriers) write 30 percent, and Florida-only domestic insurance companies write 30 percent. The remaining 10 percent comes from other national and regional insurers with smaller portfolios.


Citizens Policy Depopulation

In 2008, approximately 300,000 policies left Citizens, though depopulation this year has not been as aggressive as previously expected because of the possibility that State Farm Florida will withdraw from the market and rising secondary prices.


The “Guy Carpenter Florida Insurance Roundup” is a weekly feature on GC Capital Ideas intended to help insurers and reinsurers manage risk and capital related to the Florida market more effectively. If you have any questions about the Florida insurance market, please click here to contact the Guy Carpenter Florida Operating Committee.

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