Things just keep getting worse in Florida

From the Insurance Journal:

US Senate Committee Wants Investigation Into Florida Citizens’ Loss Reserves

By  | December 1, 2023

The chairman of the U.S. Senate’s Budget Committee has begun an investigation into Florida’s Citizens Property Insurance Corp. and how the state-created insurer plans to address potential underwriting losses from extreme weather events in coming years.

The Budget Committee is “increasingly concerned about Florida’s uniquely large and growing exposure to climate-related property losses, Citizens’ rapidly expanding market share, and state law allowing Citizens to levy special assessments on all policyholders in the event that losses exceed its ability to pay,” U.S. Sen. Sheldon Whitehouse, D-R.I., said in a statement Thursday.

“If Citizens were unable to cover its losses, it is entirely possible that state leaders might ask the federal government for a bailout,” he wrote. “Given the potential magnitude of Citizens’ losses, such a request would put the federal government (and by extension, all American taxpayers) at substantial risk.”

The Democratic senator said that Citizens, the largest property insurance carrier in the state, was being scrutinized at this time, on a national stage, due to growing concerns about the risk from climate change and natural disasters. His statement also noted that Florida Gov. Ron DeSantis triggered concerns when he said in March that Citizens may become insolvent and may be unable to pay out claims if Florida were hit by a large hurricane.

Players in the Florida insurance industry have said that DeSantis’ comments at a press conference were off the mark and that Sen. Whitehouse’s concerns are misplaced: Citizens, created by the state Legislature in 2002, by law cannot become insolvent.

“If Citizens were to pay out all reserves and reinsurance following a major storm or series of disasters, it is required by Florida law to levy surcharges and assessments on its policyholders and all Florida insurance consumers until any deficit is eliminated,” Citizens’ communications chief, Michael Peltier, said Friday. “As such, Citizens will always have the ability to pay claims.”

Citizens’ rates are limited by statute, are lower than primary market carriers’ rates and are not considered to be actuarily sound in many parts of the state. But reserves are adequate, reinsurance is not an issue, and a federal bailout has not been mentioned as a possibility, officials said.

“Citizens is probably the only company in the United States that can’t be insolvent,” said Barry Gilway, the longtime director and CEO of Citizens, who stepped down early this year. “From a solvency standpoint, Citizens is as strong as any company can possibly be.”

He added: “They don’t have to depend on investors for contributions to surplus; they don’t have to worry about surplus-to-premium ratios.”

The outlook for the Citizens’ exposure has, in fact, improved recently. State regulators in recent months have approved the take out of more than 400,000 policies by primary market carriers, although less than half of those are expected by accepted by policyholders. More policies – 223,307 – have been removed from Citizens’ book this year through its depopulation program than in the previous seven years combined, Peltier noted.

Citizens’ policies in force were expected to be about 1.2 million by the end of the year, down from a high of 1.7 million. Exposure has declined from about $675 billion to $551 billion, he said. The corporation posted a projected net loss of $2 billion for 2022, but a net income of $407 million for 2023, its 2023 annual report shows.

And several new carriers have entered or have announced plans to enter the Florida market recently, welcome news after at least 10 Florida insurers were deemed insolvent in the last three years.

Citizens and other Florida insurers have credited 2022 and 2023 Florida legislation with helping to stem claims lawsuits, which had become a major cost driver for carriers. Lawmakers also allowed Citizens to combine its three accounts into one, giving it more flexibility to move reserves to cover a shortfall.

“I don’t understand the logic behind” the Senate Budget Committee chairman’s concerns about a possible insolvency, Gilway said.

Whitehouse’s Nov. 30 letter to Citizen’s current CEO and to Florida Insurance Commissioner Michael Yaworski said the committee is taking the long view on climate change. It argues that even if Citizens is backed by a potential assessment on Florida policyholders, that surcharge would prove to be overwhelming and unfeasible in the event of a catastrophic loss, especially if vulnerable properties decline in value.

“The Committee is increasingly concerned about the potential economic consequences of an eventual widescale decline in property values caused by increasing exposure to climate risks and the attendant increase in insurance premiums and decrease in insurance availability,” the letter reads. “Should such a situation come to pass, the effects on households—and on federal revenues and spending—would be quite damaging and long-lasting, as we saw during and after the 2008 financial crisis.”

If Citizens’ storm losses reached $162 billion, as one study suggests, that would result in an assessment of $20,000 for every homeowner in Florida, Whitehouse said in the letter.

The committee asked Citizens for information and documentation on its catastrophe modeling and potential losses; its assets and reinsurance coverage; and any communication with DeSantis and others on the possibility of a federal bailout and what steps the corporation might take if it could not cover its losses.

It’s possible that politics has played a role in Whitehouse’s action, Gilway and others suggested. The chairman may be looking for an opportunity to question DeSantis’ leadership. DeSantis is running for president but is trailing former President Donald Trump in most polls, although Trump may be forced out of the running next year if he is convicted in one of four criminal prosecutions pending against him, according to news reports.

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