Fla. policyholders less likely to get stuck by a Citizens loss
TALLAHASSEE, Fla. – April 25, 2014 – The Board of Governors of Citizens Property Insurance Corp. approved a $3.1 billion risk transfer program for the 2014 hurricane season yesterday.
The move, which capitalizes on favorable market conditions to increase reinsurance coverage at a lower price, lessens the chance that Florida homeowners who don't insure through Citizens will get stuck paying a surcharge if Citizens incurs losses it can't cover. For 2014, assessments in the event of a 100-year storm would be approximately $2.4 billion – a nearly 80 percent decrease from the $11.6 billion three years ago.
Citizens says it raised its reinsurance protection by nearly 70 percent from previous levels, and it still expects a 2014 surplus of roughly $600 million. After the new risk transfer transactions are closed, Citizens will have about $3.1 billion in reinsurance available in the event of a major storm or series of storms this hurricane season.
"Essentially, in the last three years, we have reduced the risk to our taxpayers of an assessment by more than $9 billion, or approximately 80 percent," says Chris Gardner, Chairman of Citizens Board of Governors.
Unlike previous capital market risk transfers, which were structured for single events only, the 2014 transaction provides coverage on an annual aggregate basis over the next three years, protecting the state-created insurer of last resort from multiple smaller storms.
Citizens has also bolstered its participation in the traditional reinsurance market with the expected purchase of approximately $1.3 billion in coverage for the 2014 hurricane season, including approximately $750 million that covers aggregate losses in the event of multiple storms.
The reinsurance package will cost Citizens approximately $300 million in 2014, roughly equal to the amount spent in 2013 for $1.85 billion in reinsurance coverage.
Following the transactions, Citizens says it will enter the 2014 hurricane season with the ability to pay all claims in the event of approximately a 70-year storm without the need to assess policyholders.
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