Florida Citizens Property Insurance Corp. says it plans to makeup to $350 million available to private insurers willing to assumeits policies.

Under a plan approved late last week by the supposed last-resortinsurer that is now the state's largest property writer,low-interest 20-year loans would be made available from Citizens'surplus to qualifying "take-out companies"—those approved by thestate Office of Insurance Regulation to remove policies fromCitizens in order to reduce its exposure.

Barry Gilway, president and CEO of Citizens, says as manyas 300,000 policies could be removed under the new loanprogram—possibly by the start of 2013. If so, the assessment riskover the heads of nearly all Florida policyholders would be reduced$1.2 billion (for a 1-in-100 year event), he adds.

Citizens says it would need to pay the private reinsurancemarket $240 million per year to reduce the same amount of probablemaximum loss.

A loan of up to $50 million per insurer is being madeavailable in order to entice the private property insurance marketto take Citizens' policies for up to 10 years.

Many of Citizens' policies are significantly underpriced and anyinsurer willing to participate in this take-out proposal cannotincrease rates on any assumed policy at renewal by more than 10percent. The loans are meant to make it easier for a privateinsurer to take the underpriced risk. 

The plan was developed after asking for proposals from theprivate market, says Samuel Miller, executive vice president of theFlorida Insurance Council, a trade group that has not taken aformal position on the surplus notes plan.

But, he says, "Any proposal that would reduce Citizens' exposureshould be considered, and this is a legitimate proposal. A majorityof Citizens' policies are underpriced, making it difficult for aprivate insurer to take them. This is designed to make it work." 

Some FIC-member companies may be interested in assumingsome Citizens' policies under the loan program.

This new depopulation plan is separate from an announcement madeby Insurance Commissioner Kevin McCarty the same day Citizens'Depopulation Committee met to go over its latest depopulation idea.He approved four domestic insurers to remove a total of 150,000 policies from the state's bloatedlast-resort insurer on Nov. 6 under the old program with nofinancial incentives.

It remains unclear who will make sure no one insurer takes outtoo much risk in relation to the loan it receives from Citizens.The OIR says it couldn't say until it "had a chance to evaluate[the proposal] in its final form." The OIR must review and approvethe plan.

In his statement, McCarty says four additional companiesexpressed interest in removing about 181,000 additional policiesfrom Citizens' books contingent on the surplus notes program beingapproved.

McCarty sent a letter to Citizens, urging the insurer to givepriority to insurers that have been approved to take-out policieswithout financial incentives.

The proposal has its critics. Some lawmakers object totransferring surplus to the private market. And there remains someconcern about the fact policyholders can still opt-out and chose tostay with Citizens at the point of first notice and they can goback to the state-run insurer at renewal.

The 300,000 policy-count prediction may be lofty. Many insurerswill be gunning for a lot of the same, less-risky policies.

But Jeff Grady, president and CEO of the Florida Association ofInsurance Agents, says any plan that would result in less relianceon Citizens would be alike "living a fantasy."

"I think [Citizens] spent a lot of time on this and did somegood analysis," he says. "It looks pretty reasonable. It's lendingmoney. It's not giving it away."

With policies potentially staying off Citizens' books for adecade, Grady could not be happier.

"I'm not discounting that take-outs are hard, but agents willown that business again," he says.