Guy Carpenter Florida Operating Committee
This week’s topics include:
- Crist Likely to Pass Property Insurance Bill (HB 1495) Including Citizens Rate Increase, Possibly Veto Deregulation
- Citizens Board Met to Discuss Reinsurance and TICL Purchases
- Raymond James to Present Updated FHCF Bonding Capacity Estimates
Governor Crist said he plans to sign into law legislation that would allow Citizens Property Insurance Corporation (”Citizens”) to increase premiums by up to 10 percent per year. But, he has stated that a deregulation bill intended to bring large property insurers back to the state gives him pause, and there is speculation Crist may veto this bill. Florida CFO Alex Sink supports the Citizens rate increase but, like Crist, is hesitant about deregulation.
Sink says that Florida homeowners are subsidizing Citizens by as much as 40 percent, as it has not been charging enough for coverage. If a big storm hits, a deficit would likely result, causing taxpayers to have to make up the difference.
Neither bill is with the Governor yet, and generally the last bills that pass are the last to be sent to his office — unless specifically requested. Once the Governor receives a bill he has 15 days to act on it. For a recap of the provisions included in both HB 1495 and HB 1171 please see last week’s Florida Insurance Roundup.
The Citizens Board of Governors met Thursday, May 7, 2009. The Board voted not to purchase private reinsurance for the 2009 hurricane season, with the condition that CFO Binnun and President Scott Wallace bring any appropriate reinsurance opportunities arising at a later date before the Board. This development will free up the capacity that reinsurers had allocated to this placement last year; however, the impact is muted somewhat by the fact that much of the coverage was not placed in the traditional market.
The Board also discussed whether to purchase Temporary Increase in Coverage Limits (TICL) layer coverage from the Florida Hurricane Catastrophe Fund (FHCF) for the 2009 season. Citizens’ CFO recommended that Citizens purchase the maximum amount of TICL coverage available because of favorable pricing relative to private reinsurance. After an evaluation by the Board of the benefit of purchasing coverage through the FHCF as opposed to levying assessments themselves (since the FHCF and Citizens share the same assessment base), it was concluded that there were structural benefits that supported Citizens continued purchase of TICL. This is consistent with the coverage Citizens purchased for last year’s hurricane season.
Mandatory FHCF coverage amounts to approximately USD5.9 billion at 90 percent of covered losses after retention — at a premium of approximately USD373 million. Optional TICL layer coverage — all of the layers above mandatory coverage — comes to approximately USD3.5 billion — at 90 percent of covered losses, for a premium of approximately USD173 million. This amount of TICL coverage could significantly reduce the magnitude and likelihood of Citizens’ assessments should losses approach that level.
Tuesday, May 14, 2009 at 9 AM in Tallahassee, Raymond James, the FHCF’s Financial Advisor will present the latest post-event bonding capacity estimates to the Advisory Council for its review and approval.
In a April 10, 2009 memo from Raymond James to the FHCF providing an update on hurricane season funding, it is indicated that the Financial Services Team Senior Managers believe, on average, that the FHCF could issue USD8 billion in post-event bonding, an increase of USD5 billion over the October 2008 estimate. This increase was primarily based on the State of California’s recent success issuing tax exempt bonds and general improvement in the tax-exempt sector.
The improvement of FHCF post-event capacity has contributed to decreased pressure on companies to find alternate liquidity solutions within the FHCF mandatory layer. Continued improvement in bonding capacity will have a positive impact on insurers ability to meet the rest of their risk management needs.
Contributing Source: Colodny, Fass, Talenfeld, Karlinsky & Abate, P.A.
Statements concerning, tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants, and may not be relied upon as tax, accounting, legal or regulatory advice which we are not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.