Florida Gov. Ron DeSantis raised some questions when he suggested that Citizens Property Insurance Corp., the insurance company set up by the state, “wasn’t solvent” and might be unable to pay all the claims from a major hurricane.
The scratching comments came on March 17, just hours before the Nationals board of directors voted to spend more than $170 million over the next three years on $500 million reinsurance bonds — a move employees said would help the insurer pay off its future Hurricane. Claims.
DeSantis made the statement at a press conference in Fort Myers, the city that bore the brunt of Hurricane Ian last September, as many homeowners now complain they have received little or no payments on their insurance claims.
DeSantis was asked by a news reporter if he would consider changing the citizen eligibility requirements for homeowners. Some residents said they can’t be fully covered by citizens because the company limits coverage to $700,000 per home in most parts of the state. Others said they could not be accepted by citizens until the damage from Hurricane Ian was repaired, but repairs were delayed while claims with the existing carrier were delayed or not paid.
“Maybe, yeah, I would be willing to look into that for sure,” DeSantis said, according to Channel Florida and WZVN TV 7 News in Naples. “I think most people know that the citizens weren’t able to pay their debts. If you had a big hurricane that hit a lot of the owners of the citizens’ property, you wouldn’t have much to pay.”
Reached later, Brian Griffin, the governor’s press secretary, did not explain what DeSantis might mean. He referred the insurance magazine to a press conference held in December when DeSantis signed Senate Bill 2A, a comprehensive insurance reform bill.
Citizens, by law, cannot become insolvent. State law allows the company to charge citizens policyholders an additional fee and then carrier policyholders if its reserves and reinsurance classes are lower than losses in a catastrophic hurricane season. DeSantis acknowledged that the evaluation mechanism at the press conference.
“The governor is right that if citizens exhaust his surplus and have a deficit, we are required to impose assessments on our policyholders and most other insurance consumers in Florida,” said Michael Peltier, Director of Citizens Media Relations.
Citizens’ board members could not be reached for comment.
It’s no secret that citizens’ rates aren’t considered actuarially sound and are below market levels in many parts of the state, thanks to an insurance company’s legal course of limiting annual increases.
But Citizens are far from bankrupt, as leaders of the Citizens’ Insurance and Financial Documents industry point out.
The Citizens Budget for 2023 indicates that it will generate about $407 million in net income this year, due in large part to investment returns. Its most recent quarterly statement shows its assets in the third quarter of 2022 were not less than its liabilities.
Board members, industry executives and lawmakers have expressed concern that the explosive growth of citizens in recent years will cause policyholders to be assessed if the state is hit by two or more major hurricanes, and the insurer launches a resident evacuation program designed to reduce its exposure. .
But no one has indicated that the company, created by the legislature in 2002 as an insurance company of last resort, is close to bankruptcy.
At a meeting of the Nationals’ Board of Governors later that day, no one mentioned DeSantis’ comments. But the board voted to approve the employees’ recommendation that the company secure an additional $500 million in reinsurance protection. Staff said this would help avoid an assessment of policyholders.
Chairman Carlos Peroff has argued vigorously against the Lightning Re Ltd catastrophe bond package. An entity set up by Citizens to secure investors and provide coverage. Although Citizens’ staff and advisors developed the plan and negotiated with investors in a tough market for months, Peroff said it would cost a lot: $61 million for the first year and $55 million annually for the next two years in fees and interest payments.
The bonds are expected to account for $51.5 billion in total industry losses and will run out at $66 billion in losses.
“The decision for me is very simple,” said Peroff, a real estate developer and homebuilder with Bradenton. “For us to recover 100 cents on the dollar, it would have hit the state to the tune of $66 billion across the industry, which puts us in a whole different world.”
Nationals would have a better chance of making back their expenses, he quipped, by purchasing $61 million worth of lottery tickets.
Peroff argued that if the storms caused such huge losses in one year, Florida’s economy would collapse. Landlords won’t be able to rebuild anytime soon, thanks in part to what will become an overburdened supply chain. The reinsurance layer, he said, would be the least of Florida’s problems at that point. He urged the board to consider alternatives to bonds, including traditional reinsurance purchases.
To help put the amount of loss into perspective, $66 billion isn’t off the charts. Hurricane Ian’s insured losses, including flood damage, amounted to more than $60 billion by some estimates.
The cat bond program will no longer be available at negotiated rates, said Citizens chief financial officer Jennifer Montero and Citizens advisor Raymond James, at a time of rising reinsurance rates and distressed investors in Florida. Without it, Montero said, citizens would move a step closer to the need to charge policyholders appraisal fees in the event of severe losses.
At the end of the emergency board meeting, the Nationals’ governors voted 5-2 to endorse the Lightning Re Bond plan.