Florida Citizens Property Insurance Board Approves Risk Transfer Programs

Citizens Property Insurance Corporation’s (“Citizens”) Board of Governors (“Board”) met via teleconference today, May 8, 2012, to discuss Citizens’ purchase of reinsurance for the 2012 Hurricane Season.

The Board approved the purchase of mandatory coverage from the Florida Hurricane Catastrophe Fund (“FHCF”).  The mandatory layer would provide a total of $6.908 billion of coverage, $2.911 billion for Citizens’ Personal Lines Account/Commercial Lines Account and $3.997 billion for its Coastal Account (formerly the High-Risk Account).  The cost would be approximately $540 million. 

At the recommendation of Citizens’ staff, the Board decided not to buy the FHCF’s Temporary Increase Coverage Limit (“TICL”) layer.  Citizens’ Chief Financial Officer Sharon Binnun noted that the cost of the TICL layer has risen to where it is close to the cost of what is available in the private market.  Purchasing this layer in the private market is less risky and would allow Citizens to diversify the risk, she explained.

The Board then took up the next action item, which was the transfer of $750 million of risk through traditional risk transfer for the Coastal Account only.  

The risk would be transferred through two programs:

• The first is a two-year program of $250 million of risk transfer alongside the capital markets risk transfer. This program would attach when single-storm losses exceed $6.35 billion at a cost not to exceed 19.25 percent rate on line ($49 million).
• The second program is $500 million of risk transfer, which would attach when single-storm losses exceed $7.35 billion. The cost for the second program would not exceed 17.25 percent rate on line ($87 million).

The Board approved both programs.  Board member Tom Lynch voted against approval, stating that he felt the purchase was too expensive for too little coverage.  He further expressed concerns that, if there were a number of smaller storms in one season, the reinsurance would not attach.

Subsequent to the vote, the meeting was adjourned. 

To access the meeting materials, click here.

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