Citizens preps for '05 storm bills

[Aquawind]

Geesh one cane in the wrong place and Florida is done for the year..well they would hope so..

Paul

http://www.news-press.com/apps/pbcs.dll ... 00415/1075


Citizens preps for '05 storm bills

State's insurer agrees on $55.7 million cushion

By PAIGE ST. JOHN,
THE NEWS-PRESS TALLAHASSEE BUREAU
Published by news-press.com on June 30, 2005

TALLAHASSEE — Citizens Property Insurance on Wednesday voted to spend $55.7 million on reinsurance as part of a mandate to reduce the chance of another financial bailout like the one required after 2004.

"We believe it is a fair purchase, and it does make sense," Citizens Chief Financial Officer Jessica Buss said.

Reinsurance is what companies buy to protect themselves against massive payouts from policyholder losses. It's a change of business practice for the state-run insurance company that covers homes, most of them coastal, that private insurers won't touch.

Citizens had no backup coverage last year. It went $516 million in the hole to cover storm bills from last year's four hurricanes.

There will be a charge against all property policies in the state to make up that deficit — an assessment that's been delayed at least until August, but means an average 6.8 percent surcharge to home insurance premiums.

Legislators this year required Citizens to make a "best effort" to buy enough coverage to handle a 100-year storm. The board of governors balked at the cost for that much coverage and opted for less.

The decision to buy, and how much, emphasizes the gamble of insurance, board member Ed London said.

"It's a game of casino," he said. "It really is a calculated risk."

The purchase, which will go into effect in a matter of days, does not reduce the odds of a second assessment against homeowners. It does cap that amount.

It would take $250 million in claims — a storm close to the scope of Hurricane Jeanne — to again deplete Citizens' high-risk account and trigger more assessments. Reinsurance wouldn't kick in until claims exceed $775 million.

Last year, Citizens' high-risk wind accounts had $1.5 billion in losses from all four storms.

Citizens' own consultants put the odds of a second assessment this year at one in five.

The right storm in the right place can be that big, said Thomas Larsen, senior vice president of EQECAT, one of the hurricane risk modeling companies that Citizens turns to.

"It seems like a lot of dollars, but we've got a lot of people in the United States on the coast," Larsen said.

The National Hurricane Center forecasts from 12 to 15 named storms this season, three to five of them major. EQECAT's models point to more than a one in three chance of large losses again this year.

Citizens' own financial adviser warns it makes as much sense to skip reinsurance, save the money and rely on assessments for a bailout if claims exceed funds on hand.

State law allows the public company the unique ability to recoup losses with mandatory charges against all policyholders in the state.

"This ability gives Citizens a very important post-event cost of capital and access to capital benefit that make it harder financially to justify the cost of purchasing reinsurance in many circumstances," consultant John Forney wrote Monday.