Citizens Property Insurance Corp., confronted with dire projections that a massive hurricane could inflict $22 billion worth of damage on the insurer, may try to shore up its finances ahead of what could be a very active storm season. It is debating whether to purchase private reinsurance this year; it has traditionally only relied on the Florida Hurricane Catastrophe Fund (Cat Fund).
Citizens Board of Governors Chairman Jim Malone and high-ranking officials from the insurer visited Bermuda in March where they spent an entire day meeting with representatives of the world’s major reinsurance firms, many of which are based in the tiny island nation.
Citizens is Florida largest property insurer, with a whopping total exposure of $462 billion. It has more than 1.3 million policies in force and provides the bulk of insurance for most of the state’s coastline. While it has managed to build up its surplus over the past five hurricane-free years, there are fears that it still is not financially sound enough.
Those who serve on the Citizens’ board with Malone have so far been generally receptive to the idea of purchasing private reinsurance. They say it is not just a major 1-in-100-year type of storm that scares them. A series of smaller storms could quickly wipe out the surplus. “If there was a second storm, we would be in very serious trouble,” said board member Tom Lynch.
The early prognosis is that as many 16 named storms, including nine hurricanes, will develop during the 2011 storm season. Colorado State University forecasters predict that five hurricanes would bring winds in excess of 110 miles per hour and that there is a 72 percent chance one major hurricane will hit the U.S. The forecast also suggests that there is a 48 percent chance a major hurricane will hit the East Coast, including Florida.
The push by Citizens to get more money to shore up its finances comes as the Florida Legislature is debating whether to let the carrier raise its rates.
Currently, Citizens’ rate hikes are capped at 10 percent a year. SB 1714 and HB 1243 were proposed during the annual session to allow the carrier to raise its rates—as well as to put additional limits on which homeowners could stay enrolled with the carrier.