Florida Gov. Ron DeSantis raised some questions when he suggested that Citizens Property Insurance Corp., the state-created insurer, “is not solvent” and may be unable to pay all claims from a major hurricane.
The head-scratching comments came on March 17, hours before the Citizens Board of Governors voted to spend more than $170 million on $500 million in reinsurance bonds over the next three years — a move that staff members said would help the insurer pay off its future hurricane claims.
DeSantis made his statement at a news conference in Fort Myers, a city that was hit hard by Hurricane Ian last September, and where many homeowners are now complaining that they have received little or no payment on their insurance claims.
A news reporter asked DeSantis if he would consider changing citizen eligibility requirements for homeowners. Some residents said they may not be fully covered by Citizens as the corporation caps coverage at $700,000 per home in most parts of the state. Others said they cannot be accepted by Citizens until their Hurricane Ian damage is repaired, but repairs have been delayed while claims with their existing carriers have been delayed or unpaid.
“Maybe, yeah, I’m definitely willing to see it,” DeSantis said, according to The Florida Channel and WZVN TV 7 News in Naples. “I think most people know that Citizens is not solvent. If you have a big hurricane hit with a lot of civil property holders, it’s not going to pay much.”
Brian Griffin, the governor’s press secretary, reached later, did not elaborate on what DeSantis might have meant. He referred Insurance Journal to a news conference held in December when DeSantis signed Senate Bill 2A, a major insurance overhaul law.
Citizens, by law, cannot be bankrupt. State law allows the company to charge a surcharge on Citizens policyholders and then on all carrier policyholders if its reserve and reinsurance levels fall short of losses during a catastrophic hurricane season. DeSantis acknowledged that evaluation process at the press conference.
Citizens media relations manager Michael Peltier said, “The governor is correct that if Citizens exhausts its surplus and there is a deficit, we will have to pass the assessment on to our policyholders and most other insurance consumers in Florida.”
Citizens board members could not be reached for comment.
It’s no secret that Citizens’ rates aren’t exactly considered fair and are below market levels in many parts of the state, thanks to insurers’ statutory glidepaths that limit annual increases.
But Citizens is far from bankrupt, insurance industry leaders and Citizens Financial documents indicate
Citizens’ 2023 budget indicates that net income will be about $407 million this year, due in large part to investment returns. Its latest quarterly statement shows that its assets were not less than its liabilities in the third quarter of 2022.
Board members, industry executives and lawmakers have expressed concern that explosive population growth in recent years will lead to an assessment on policyholders if two or more major hurricanes hit the state, and insurers have launched a population program designed to reduce exposure. .
But none suggested that the corporation, created by the Legislature in 2002 as an insurer of last resort, was close to bankruptcy.
At the Citizens Board of Governors meeting later that day, no one mentioned DeSantis’ comments. But the board voted to approve a staff recommendation that the corporation secure an additional $500 million in reinsurance protection. This will help avoid an assessment on policyholders, officials said.
Chairman Carlos Beruf argued strongly against the catastrophe bond package for Lightning Re Ltd., an organization created by citizens to protect investors and provide coverage. Although Citizens staff and advisers developed the plan and spent months negotiating with investors in a tough market, Beruf said it would cost too much: $61 million for the first year and $55 million a year in fees and interest for the next two years. .
The bond would add $51.5 billion in total industry losses and exhaust $66 billion in losses.
“The decision for me was pretty easy,” said Beruf, a Bradenton real estate developer and home builder. “For us to recover 100 cents on the dollar, the state took a $66 billion hit across the industry, which puts us in a completely different world.”
Citizens would have a better chance of recouping its costs by buying $61 million worth of lottery tickets, he quipped.
Beruf argued that if the storm did that much damage in one year, Florida’s economy would be destroyed. Property owners won’t be able to rebuild anytime soon, thanks to what will become an overwhelmed supply chain. A level of reinsurance would be the least of Floridians’ problems at that time, he said. He urged the board to consider bond alternatives, including more traditional reinsurance purchases.
To help put the loss into perspective, $66 billion is off the charts. Insured losses from Hurricane Ian, including flood damage, exceeded $60 billion by some estimates.
Citizens’ chief financial officer, Jennifer Montero, and Citizens’ adviser Raymond James said the cat bond program would not be available again at negotiated rates, at a time of rising reinsurance prices and Florida-skid investors. Without it, Montero said, Citizens would be one step ahead of requiring assessment charges on policyholders if there is extensive damage.
After an emergency board meeting, Citizens governors voted 5-2 to approve the Lightning Rebond plan.