Citizens Property Insurance Corporation Actuarial and Underwriting Committee Votes to Send 2012 Rate Indications to Citizens Board of Governors for Approval

 

The Citizens Property Insurance Corporation (“Citizens”) Actuarial and Underwriting Committee (“Committee”) voted today, July 26, 2011, to recommend to the Citizens Board of Governors (“Board”) that Citizens’ 2012 rate indications be filed with the Florida Office of Insurance Regulation (“OIR”). 

To view the meeting agenda and materials, click here.

After Chairman Earl Horton opened the meeting, Citizens Chief Financial Officer Sharon Binnun spoke about the rate analysis process, explaining that the rate indications were prepared by Citizens’ internal and external actuaries who reviewed each other’s work.  Citizens is required by Florida law to charge actuarially sound rates and to make a filing each year with the OIR, which must review and establish these rates within 45 days of the filing. 

State law also requires that Citizens limit rate changes to no more than 10 percent per policyholder for non-sinkhole perils, excluding coverage changes and surcharges, until actuarially sound rates are achieved for a particular line of business.  Senate Bill 408, passed by the 2011 Florida Legislature, provides for an exception to the 10 percent cap with regard to sinkhole coverage specifically, Ms. Binnun said. 

For 2010, Citizens’ earned sinkhole premium was approximately $32 million for residential lines, with expected ultimate losses and loss-related expenses being approximately $245 million.  Ms. Binnun stated that the 2010 net losses are more than double those that were reported in the 2009 calendar year. 

In conducting the 2012 rate indication analysis, Citizens used five years of actual sinkhole loss experience, which showed dramatic increases in sinkhole-related loss trends.  Ms. Binnun said that there has been an “explosion of sinkhole claims” received by Citizens, but optimism exists that provisions of SB 408 will prevent losses from increasing and thus, ultimately reduce sinkhole premiums.  She said that interested parties should look not at statewide averages and percentage increases, but at specific territories.  For example, Pinellas County homeowners would face a proposed 2,000 percent increase, which would raise the current average sinkhole premium from $3 to $72. 

Committee member Carol Everhart asked if policyholder bills specifically “spell out” current sinkhole premiums.  Citizens Chief Actuary Brian Donovan said that he did not believe sinkhole premiums are presented as a separate item.  Ms. Everhart then asked whether sinkhole coverage would now be listed as a renewal, with the option to elect or not elect it, and if notification of increased premiums would be provided.  Ms. Binnun replied that sinkhole coverage has been optional by endorsement in the past, which will continue.  She said that Citizens has a communications strategy to notify customers of the option to remove coverage at the time of their policy renewal.

Ms. Binnun said that Citizens is expected to submit 14 separate rate filings to the OIR.

Mr. Donovan said that the final rate indications include a provision for the Florida Hurricane Catastrophe Fund (“FHCF”) build-up factor.  All indications include the net cost associated with purchasing the mandatory level of the FHCF.  Citizens did not purchase the FHCF Temporary Increase in Coverage Limit (“TICL”) layer in 2011 and, therefore, no net cost of TICL is included in the 2012 rate filing.

Non-Catastrophic Losses

In analyzing non-catastrophic losses, Citizens examined the past five years of actual data, as well as adjusted and analyzed premium losses for expected 2012 results. 

Catastrophic Wind Losses

To calculate potential catastrophic losses, Citizens used the AIR v. 12 model (“AIR”) for the wind portion of the rate for personal residential policies.  The Florida Public Model was used to set the minimum benchmark, as required by law. 

For commercial residential and non-residential wind-only policies, Citizens used the AIR model as the benchmark for the wind portion of the rates, which closely correlated with indications generated by its RMS counterpart.

The AIR model was also used as the benchmark for the wind portion of commercial residential multi-peril rates.  Citizens relied primarily on the AIR model for rate-level indications, but, due to a large variance in the results, consideration was given to the RMS model when making final territory level selections.

Mr. Donovan stated that the statewide average rate change, across all lines is 8.8 percent, which includes the FHCF build-up factor, but excludes sinkhole peril.  For personal lines, the change is 8.6 percent when including the FHCF build-up and 7.2 percent without it.  Commercial wind-only coverage would sustain a change of 13.6 percent with the FHCF build-up and 9.9 percent without it.  Commercial non-residential wind-only policies, which are not subject to the FHCF, is listed at 10 percent.  Commercial residential multi-peril rates with the FHCF build-up would bear a 6.6 percent change and a 5.1 percent change without the FHCF.

Mr. Donovan noted that the proposed statewide average rate changes for sinkhole coverage vary significantly by territory. 

He said that the proposed rates would be effective January 1, 2011 for multi-peril coverage and February 1, 2012 for wind-only policies. 

With no further discussion, a motion to recommend the proposed rates to the Board at its scheduled July 27, 2011 meeting was made, seconded and approved.

The meeting was then adjourned.

 

Should you have any questions or comments, please contact Colodny Fass.

 

 

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