Florida Citizens Property Insurance Corp. plans to make up to $350 million available to private insurers willing to assume its policies, offering low-interest, 20-year loans from its surplus to qualifying "take-out companies"—those approved by the state Office of Insurance Regulation to remove policies from Citizens in order to reduce its exposure.
Citizens President & CEO Barry Gilway says as many as 300,000 policies could be removed under the loan program—possibly by the start of 2013. If so, the assessment risk over 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 have to pay the private reinsurance market $240 million per year to reduce the same amount of probable maximum loss.)
This financial incentive of up to $50 million per insurer is being made available in order to entice the private property-insurance market to assume some of its policies for up to 10 years. Many of Citizens' policies are significantly underpriced, and any insurer willing to participate in the take-out proposal cannot increase rates on any assumed policy by more than 10 percent at renewal.
The plan was developed after Florida's last-resort insurer solicited proposals from the private market on reducing its exposure, says Samuel Miller, executive vice president of the Florida Insurance Council—a trade group that has not taken a formal position on the plan.
However, he tells NU, "Any proposal that would reduce Citizens' exposure should be considered, and this is a legitimate proposal. A majority of Citizens' policies are underpriced, making it difficult for a private insurer to take them. This is designed to make it work."
It remains unclear who will ensure that no one insurer assumes too much risk relative to the loan it receives from Citizens. The Florida Office of Insurance Regulation, which still must review and approve the plan, says it couldn't say until it "had a chance to evaluate [the proposal] in its final form."
Florida Insurance Commissioner Kevin McCarty says in a statement that four additional companies have expressed interest in removing about 181,000 additional policies from Citizens' books, should the loan program be approved. McCarty sent a letter to Citizens, urging the insurer to give priority to those insurers that have already been approved to take out policies without financial incentives.
The proposal is not without its critics. Some lawmakers object to transferring surplus to the private market. And there remains some concern about the fact that policyholders can still opt out and choose to stay with Citizens at the point of first notice or to go back to the state-run insurer at renewal.
Additionally, the 300,000 policy-count prediction may be a lofty goal. Many insurers will be gunning for a lot of the same, less-risky policies.
But Jeff Grady, president and CEO of the Florida Association of Insurance Agents, says any plan that would result in less reliance on Citizens would be "living a fantasy.
"I think [Citizens] spent a lot of time on this and did some good analysis," he tells NU. "It looks pretty reasonable. It's lending money; it's not giving it away."
Grady couldn't be happier if policies could stay off Citizens' books for a decade. "I'm not discounting that take-outs are hard, but agents will own that business again," he says.
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