- Citizens Property Insurance Company’s CEO Tim Cerio expressed concern about the company’s ability to pay out claims after a catastrophic hurricane without resorting to surcharges on policyholders and assessments on Florida taxpayers.
- Cerio affirmed that claims would be paid following a major storm, but through a combination of reinsurance, surcharges, and assessments. Reinsurance involves transferring risks to another insurer to mitigate financial impact.
- Citizens, an insurer of last resort in Florida, anticipates insuring around 1.7 million policyholders by the end of 2023 with a premium volume exceeding $5.1 billion.
Citizens Property Insurance Company CEO Tim Cerio indicated on Tuesday night during a property insurance online forum with Senate Democrats that the company may be unable to pay out claims following another catastrophic hurricane without the use of surcharges for policy holders and assessments on Floridian taxpayers.
In response to a question from The Capitolist regarding Citizens’ financial status, which was prompted following comments made by Gov. Ron DeSantis in April stating that the insurer could be insolvent, Cerio confirmed that the potential issue of handling claims is a significant worry for officials.
Cerio’s affirmation came after DeSantis suggested that if a major hurricane were to strike and impact numerous Citizens policyholders, the insurer might not have sufficient funds to cover the resulting claims.
“Our Board is very concerned about that,” said Cerio. “That’s why we buy reinsurance. We would not have enough to pay claims and that’s why there’s the assessment authority. Reinsurance, the Cat fund, these are all what will hopefully protect people because they are able to pay claims and protect the citizens of Florida from being hit with further assessments, but it is a danger.”
Cerio was meticulous in clarifying that claims would, in fact, be paid following a catastrophic storm, albeit through reinsurance, surcharges, and assessments. Reinsurance is a financial arrangement in which one insurance company — the “ceding” or “primary” insurer — transfers a portion of its risks and liabilities to another insurance company.
This is typically done to mitigate the potential financial impact of large claims or natural disaster events that could significantly strain the resources of the primary insurer with the downside that resulting debts are likely to be passed onto the taxpayers of Florida.
By the end of 2023, Citizens, an intended insurer of last resort, foresees insuring approximately 1.7 million policyholders with a premium volume exceeding $5.1 billion, according to its 2023 budget. In contrast to its two-decade history, this year marks an uptick in premium levels, magnified by a 486 percent projected increase in premium and 276 percent in policyholders over five years when $877 million in premium was recorded for nearly 447,000 policyholders.
Last week, Citizens reported an addition of more than 7,700 policies, resulting in a total surpassing 1.37 million policies, as stated on its website on Tuesday. The policy count for Citizens stood at 1,371,324 on the preceding Friday, indicating an increase from 1,363,606 policies a week prior and 1,353,786 policies two weeks prior.
One of the most glaring problems facing Citizens is that it’s significantly less expensive to get insurance through Citizens than it is going through the private market.
Cerio noted last month during an insurance hearing that agency projections may trend lower if depopulation measures prove to be effective at moving some portion of property owners back into the private market as reforms enacted over the last several years begin to take effect.
He further outlined Citizens’ plan to bring premiums up so that they are in line with private insurer premiums – while at the same time allowing time for the private market’s premiums to more closely reflect an actuarially sound premium level.
Ahead of Florida’s hurricane season, the state Office of Insurance Regulation (OIR) authorized a request for $1.25 billion in credit lines for Citizens. The order, signed by Florida Insurance Commissioner Michael Yaworsky, grants $750 million in credit with Bank of America and $500 million with Wells Fargo.
“The purpose of the lines of credit is to provide the personal lines account with needed liquidity in preparation for the 2023 hurricane season,” reads the order. “As a result, the Lines of Credit will enable Citizens to efficiently meet its financial obligations.”
According to the authorization, Citizens will be permitted to use the money, if needed, to help pay claims and expenses for personal lines accounts through a Revolving Credit Agreement, which includes homeowners’ policies.
As part of the agreement, the OIR is requiring Citizens to provide the state with quarterly updates on amounts borrowed, amounts used to settle claims and associated costs, amounts repaid, and amounts expected to be levied for debt repayment.