Citizens Issues Advisory About Incorrect Information

Citizens Property Insurance Corporation issued the following information in response to a Gannett news service story that appeared in FloridaToday.com.  The news story is included below.

Should you have any questions or comments, please do not hesitate to contact this office.

Advisory Regarding Incorrect Story about Citizens Reserve Fund

TALLAHASSEE, Fla. – A story released Tuesday by Gannett’s  Florida Capital Bureau contained factual errors and misleading information about Citizens Property Insurance Corporation.  The erroneous information is as follows:

• An “outside auditor finds the state-run Citizens Property Insurance is short almost $300 million in reserves. . . ”

At no time was Citizens “short” almost $300 million.  What has actually occurred, as was discussed at the Aug. 2, 2007, board of governors meeting, is that Citizens retained the services of an outside consulting actuary to perform a reserve analysis.

It is common practice for property and casualty insurers to periodically review reserve levels to assure that claims reserves to pay developing claims from past events are adequate.   

• That “Florida’s Hurricane Catastrophe Fund will pick up $195 million of the new bills”

If these losses develop as projected, the Florida Hurricane Catastrophe Fund may have to reimburse Citizens for as much as $175 million, with the remaining $20 million payment coming from private reinsurance.

A detailed discussion of this reserve adjustment appears below.

Due to the nature of loss reserves, in which the ultimate cost of loss events cannot be known until the claim is ultimately paid, insurers estimate loss reserves.  Admitted insurers are required to obtain an actuarial opinion of the adequacy of loss reserves annually.

As those actuarial reviews are completed, insurers adjust their reserves accordingly.  While Citizens is not an admitted insurer, the corporation performs periodic and annual reviews of loss reserves using an independent actuary.  At the Aug. 2 board meeting, an independent actuary was engaged to review Citizens’ loss reserves as of June 30, 2007.  The results of the actuarial review indicated an upward adjustment to reserves was appropriate.   

The gross increase to loss and loss adjustment expense reserves recorded in the month of June amounted to approximately $298 million.  The gross amount was offset by the amount estimated to be recoverable from reinsurers (for Wilma claims) in the amount of approximately $195 million.

Of the $195 million recoverable from reinsurers, approximately $175 million is recoverable from the Florida Hurricane Catastrophe Fund. The net adjustment to the June reserves for Citizens Property Insurance Corporation amounted to approximately $103 million.

This adjustment is to record an actuarially determined amount for Incurred But Not Reported (IBNR) claims; claims which may exist but have not yet been reported to Citizens.  This adjustment to accrue for incurred but not reported claims does not affect Citizens’ current cash position.

IBNR represents an estimate of potential future claims and as such, may or may not ultimately result in actual claims filed with Citizens.

The increase to loss reserves relates primarily to adverse development on Hurricane Wilma claims, particularly new and re-opened claims from the 2005 hurricane.

Information related to new and re-opened Hurricane Wilma claims has been a subject of discussion at recent meetings of the Task Force on Citizens Property Insurance Claims Handling and Resolution.

 

Citizens Property account $300M short

BY PAIGE ST. JOHN
FLORIDA TODAY

 

TALLAHASSEE — An outside auditor finds the state-run Citizens Property Insurance is short almost $300 million in reserves, thanks to the reopening of hundreds of hurricane claims two years after the fact.

“It’s mostly Wilma, really,” said Bruce Douglas, chairman of the state-run insurer’s board of governors. He blames the surprising trend on outsiders encouraging homeowners to seek further payment.

“The phenomenon is the number in 2007 of reopened or new filings on Wilma,” Douglas said. “They’re not frivolous, but I think they may be encouraged by certain public adjusters and attorneys.”

Florida’s Hurricane Catastrophe Fund will pick up $195 million of the new bills, leaving Citizens to pull $102.5 million from its own surplus accounts, Douglas said. The state’s largest property insurer has just under $2 billion to pay hurricane claims this year without hitting consumers up for another bailout.

Critics say Citizens’ rates — frozen at 2006 levels — are inadequate to support the greatly expanded insurance pool as it enters the height of hurricane season.