Florida Citizens Property Insurance Board Approves First-Ever Commercial Wind-Only Depopulation

 

At its meeting this morning, February 11, 2013, Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) approved a quota share reinsurance treaty with Weston Insurance Company (“Weston”), paving the way for a takeout that will remove approximately $30 billion in exposure from Citizens’ Coastal Account.

Board members Carol Everhart and Tom Lynch abstained from the vote, citing conflicts of interest.

To view the meeting materials, click here.

The proposed depopulation effort will result in an approximate $840 million decrease in Citizens’ high-risk Coastal Account’s probable maximum loss in the event of a one-in-100-year storm.

The plan marks the first time in Citizens’ history that commercial wind-only policies will have been removed from the insurer-of-last-resort’s Coastal Account.  Those types of policies comprise a majority of the total exposure removed, equating to about $22 billion worth of exposure.

“This is an example of a significant program that will have a tremendous result and it only occurs because of the close cooperation of all the parties.  I am excited about it,” said Citizens President and CEO Barry Gilway.

Under the plan, Weston will remove approximately 23,000 Personal Residential Wind-Only policies, 3,000 Commercial Residential Wind-Only policies and 5,000 Commercial Nonresidential Wind-Only policies from Citizens’ Coastal Account.  Weston received its Certificate of Authority from the Florida Office of Insurance Regulation in December 2012.

Under the proposal, Weston would:

• Maintain Citizen’s statutorily-mandated rate Glide Path, which includes increases of a maximum 10 percent a year for three years for all assumed policies
• Retain all assumed policies for at least three years
• Replace any assumed policies that leave Weston within the first three years with similar policies from Citizens, if available

According to Citizens Chief Financial Officer Sharon Binnun, the proposed takeout would occur in two phases:

1.      Approval of a quota share agreement:   Under the quota share reinsurance treaty between Weston and Citizens, Weston agrees to reinsure and pay all claims for the wind-only policies it assumes, effective December 21, 2012 through May 31, 2013.  During this period, Citizens will pay Weston a reinsurance premium for the policies covered under the reinsurance agreement.

2.      Assumption of policies:  Weston assumes approximately 31,000 wind-only policies over several separate assumptions, which would occur between March and June 2013.

Ms. Binnun noted that two-thirds of the 3,000 Commerical Residential Wind-Only policies proposed for removal from the Costal Account are high-risk condominium policies.  Depopulation of such policies would be a first for Citizens, she said.

“This is unique because these condo policies are a large percentage of wind-only policies,” Ms. Binnun stated. 

The agreement provides Weston with earned premium needed to enter the hurricane season, while also providing Citizens and consumers with protection if the depopulation transaction does not occur, it was noted.

“It accomplishes two goals – we get the benefit that Citizens and Floridians have less exposure on the books.  Weston is able to earn adequate premium in advance of the (hurricane) season,” Ms. Binnun said.

Weston has $35 million in surplus, a number that will increase to about $50 million once the policies are removed, she added. 

At that time, Weston would no longer pay reinsurance and would then pay all losses, she added.  The first depopulation is slated to occur in the middle or end of March 2013, Ms. Binnun noted.

Dan Sumner, general counsel for Citizens, also noted that the proposed takeout is significant because it will mark the first major inroad for depopulation for wind-only policies from the Coastal Account.

With no further business before the Board, the meeting was adjourned.

 

 

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

 

 

Click here to follow Colodny Fass& Webb on Twitter (@CFTLAWcom)

 

 

To unsubscribe from this newsletter, please send an email to Brooke Ellis at bellis@cftlaw.com.