Florida Citizens Property Insurance Depopulation, Reinsurance Efforts Reduced Risk By 42 Percent in 2012, Board Told
Mar 22, 2013
Echoing statements made by Citizens Property Insurance Corporation (“Citizens”) President and CEO Barry Gilway to the Florida Cabinet earlier this week, Citizens’ Chief Financial Officer Sharon Binnun told Citizens’ Board of Governors at its meeting today, March 22, 2013, that Citizens’ use of traditional reinsurers and capital market investors has enhanced the benefits gained by the company’s 2012 depopulation successes. Citizens returned 277,000 policies to the private market in 2012, which yielded an $80 billion reduction in exposure.
Citizens’ news release issued today on the announcement is reprinted below.
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REINSURANCE AND DEPOPULATION EFFORTS REDUCE ASSESSMENT RISK BY 42 PERCENT
ORLANDO, FL – Citizens Property Insurance Corporation’s (Citizens) depopulation efforts and groundbreaking risk transfer agreements will reduce potential emergency assessments for all Floridians by more than $3 billion for the 2013 hurricane season, a 42 percent reduction in risk from 2012.
Citizens’ Chief Financial Officer Sharon Binnun told the Citizens Board of Governors on Friday that Citizens’ use of traditional reinsurers and capital market investors has enhanced the benefits gained by the company’s 2012 depopulation successes. Citizens returned 277,000 policies to the private market in 2012, which yielded an $80 billion reduction in exposure.
“Transferring risk through the use of catastrophic reinsurance is an effective means to reduce the likelihood and the amount of assessments that must be paid after a storm,” Binnun said.
The total risk transfer for the 2013 hurricane season will exceed $1.75 billion. $250 million of the $1.75 billion Citizens plans to in capital market transfers in 2013. This comes on the heels of last year’s groundbreaking $750 million capital transfer. Such agreements benefit Citizens and private carriers by spreading risk and reducing demand on traditional reinsurance companies.
The depopulation and risk-transfer efforts are part of a broader push by Citizens to reduce costs and streamline expenses, a strategy that also includes tighter procurement regulations, standardized severance and internal complaint procedures, and a further tightening of travel policies to more closely mirror that of state agencies.
Investment Pays Dividends of Reduced Assessment Risk
Emergency Assessments can be levied on all property and automobile insurance policyholders if losses following a major catastrophe exceed the claims paying ability of Citizens’ surplus, traditional reinsurance, and Citizens Policyholder Surcharges.
Citizen’s 2012 depopulation successes and 2013 risk-transfer plan, coupled with an expected takeout later this year of approximately 30,000 coastal wind-only policies, have reduced the estimated assessments needed to cover a 1 in 100 year storm from $7.28 billion in 2012 to $4.22 million for the 2013 season that begins June 1. That translates into a 41.9 percent decrease.
Citizens plans to build on these successes by seeking out new and innovative ways to return policies to the private market. Citizens also hopes to establish a consumer clearinghouse that will reduce the number of new policies being written with Citizens by helping homeowners find private-market coverage where it is available. These efforts are critical as Citizens works to return to its role as the insurer of last resort.
Additional Cost Saving Measures and Oversight Procedures
Citizens also outlined additional cost saving efforts on Friday aimed at improving efficiency and lowering operating costs. For the second time since October, Citizens has altered its travel and expense policy to more closely mirror the state.
In October, Citizens revamped travel policies, not changed since 2005 that capped travel at “reasonable and appropriate.” Among the most significant changes, the revised policy set limits on hotel stays at $150 a night and capped meal spending at $60 per day.
On Friday, Citizens CEO Barry Gilway outlined a new set of guidelines that will take effect on April 7. They include reducing daily meal allowances from $60 to $36 and lowering mileage compensation from federal to state levels for employees. The new rules also require additional oversight for executive travel.
The board also approved a new slate of procurement guidelines that move Citizens closer to state purchasing requirements. Most notably, the new policy requires more detailed review of contracts in excess of $65,000, expands conflict of interest provisions and requires all Citizens purchasing agents to file financial disclosure forms.
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